Any firm that succeeds must have enough resources under their control, but the management of these resources is the core aspect of its success. Once a firm makes profits it is deemed to have succeeded in its operations. Due to the intense competition in the market, all firms, big and small, should be capable of managing their resources efficiently and effectively to gain a competitive edge in the market. However, large companies have huge resources under their control which can enable them to make huge profits. This paper gives a discussion on the influence of having a huge capital base on business success vis a vis the strategic response to competitive environment.
Advantages of huge capital base to firms
Firms succeed because of the resources under their control rather than because of their strategic response to the competitive environment. This statement is realistic and true in some sense; the amount of capital in a firm influences the number of investments the firm can undertake, although lack of effective management will lead to massive losses, which translates to resources being lost to cover the liabilities (Ogilvie, 2006 p. 4). On the other hand, when relatively small firms with fewer resources have effective management, then the firms can be able to plough back profits and own other resources.
A big capital base cushions the businesses in cases where markets are competitive since they may have time to adjust their plans given the resources they have accumulated. The capital acts as a security for any loans that may be taken by the firm either for emergency or due to market crisis, or for short and long term business expansion. This is an advantage inherent in big firms that virtually lacks in small firms.
A firm’s capital determines the kind of investment it is going to venture into. In most cases, big firms tend to venture in businesses where few have invested, mainly due to inadequate resources, and hence enjoy the monopolistic gains before competition sets in. indeed, according to Taylor (2006 p.57), the big firms have enormous resources that can allow them either enter into cartels or harness monopoly powers that enable them to gain huge profits, thus their success in the market. Big firms often tend to have links with prominent people in the government which gives them an edge over other business that may be wishing to invest in such ventures since they will be frustrated or even close businesses.
Success may be quantified by the capital base of the company, and the effectiveness of the management. In addition, ability to transform its liabilities to profits is the best instrument to use to measure its growth. The main aim of management is to solve problems that face a company or organization, and the main aim of organizations or companies is to make maximum profits which are the measure of success (Taylor, 2006 p.59). Producing in bulk is another advantage of big firms which allows them to enjoy economies of scale. Their capital base enables them to buy inputs in large quantities and at lower prices, employ efficient production process and produce high quality and quantity output unlike small firms. The result of this will be low prices on their products thus gaining a competitive advantage in the market.
Diversification is another aspect that enhances success of business based on their resource endowment. Big firms may have the capacity to incorporate various processes, especially in production of commodities that require undergoing a number of processes before they become finished goods. This gives them an edge over small firms who have to process the same products partly and sell the incomplete goods (at relatively low price) to other firms for completion. This scenario gives the evidence of the bulging gap in profits between big and small firms.
Staffing is a major function since employees are considered as an engine of firms’ success. If a firm is over staffed, then much of the company’s resources will go to clearing employees’ wages, leading to increased liabilities in the firm. However, if the firm is understaffed, then the employees’ will not have the motivation of working as there will be an element of overworking. The availability of many employees in large firms serves as a marketing tool as there will be a widespread advocacy of the firm when the operations are spread far and wide, unlike in small firms that have to rely on conventional and more expensive modes of advertisement (Lewis, 1941 p. 16). The same employees also serve as a market to the company.
Huge capital base is a key shield from competition; that is, a temporary guarantee. However, one must establish a firm with a capital base that is potentially enough to warrant competition in the market. With a huge capital base there comes trust and confidence in the consumer, thus the market is already defined for such sellers. Effective management makes all the difference when employing a manager to head a firm (Morden, 2004 p. 67).
Though competition is healthy and it enhances the betterment of services and products, strategic response to the competitive environment is not an issue since when the resources are many one has the wish to diversify and recuperate from the losses through other means. Every market is competitive but at no time will a big firm compete with a small firm in the same market. Big firms with big resources have already created goodwill to the public; giving its customers the confidence in them hence competition from other small firms does not bother the managers. A good example is the established soft drink Coca-Cola company which is a multinational and whose enormous resources give it a shield from competition by other small companies who don’t have the muscle to shake the market although its main rival Pepsi company has a niche control in some markets. Big firms build cartels and monopolies hence do not have to worry about competition.
Management of a firm may involve combining different management skills to achieve the desired objective. With effective management, then the issue of competition will never arise especially when the company has a huge asset base. Incorporating the vision, mission, objectives, policies and strategies of the firm with the principles of management gives the firm a huge success that leaves the competitors gazing and mesmerized.
Generally huge firms have better advantages as compared to small firms giving them a competitive edge in the business world and the strength to survive as a going concern. In this regard, firms succeed because of the resources under their control rather than because of their strategic response to the competitive environment and effective management is an additional aroma to the flavor to the success.
Drucker, P. F. (2007). The practice of management. Oxford, Elsevier. Web.
Lewis, J. P. (1941). Fundamentals of project management. New York, AMACON. Web.
Morden, T. (2004). Principles of management. Surrey, Ashgate Publishing limited. Web.
Ogilvie, J. R. (2006). CLEP Principles of Management: The Best Test Preparation for the CLEP. New Jersey, Research & Education Association. Web.
Taylor, F.W. (2006). The Principles of Scientific Management. New York, Cosimo Inc. Web.