What’s it? A large business is a category with an above-average size, large operations, and high economies of scale. It hires a lot of labor and generates a lot of revenue. It may target national or even international markets.
Large companies have a higher competitive capacity than small businesses because they have large resources. They may operate several production facilities and rely on advanced production technology and techniques. They also have more access to capital, and it is easy to attract specialists or professionals.
The role of large businesses in society and economy
Large businesses play a multifaceted role in shaping society and the economy. On the economic front, they are engines of growth, driving innovation, creating jobs, and contributing significantly to the tax base. Their global reach can open new markets for domestic products and services and promote international trade.
Economies of scale allow them to offer competitive prices, potentially benefitting consumers. Furthermore, large businesses can invest in infrastructure development within the communities they operate in, creating a positive ripple effect.
However, large businesses’ social impact can be a double-edged sword. While they can be pillars of philanthropy and supporters of social causes, their influence can also raise concerns. Their environmental impact needs careful monitoring and mitigation strategies. They have a responsibility to operate sustainably and ethically. Additionally, their dominance in certain sectors can lead to income inequality and homogenization of products and services.
Classifying a large business
While the specific criteria for classifying a business as “large” can vary by country and institution, a general categorization system divides businesses into micro, small, medium, and large sizes. However, the specific metrics used to determine these categories differ. Here’s a closer look at the factors commonly used to define large businesses:
- Employee headcount: The number of employees a company has is a widely used metric. The Organization for Economic Co-operation and Development (OECD), for instance, classifies a large business as having more than 250 employees.
- Annual revenue: The amount of income a company generates annually is another key indicator. The Small Business Administration (SBA) in the United States uses this metric extensively, with their definition of a large business varying depending on the industry but generally exceeding $1 billion in annual revenue.
- Production volume: Production volume plays a significant role for manufacturing companies. Large businesses typically have extensive production capabilities, allowing them to produce goods in high quantities to meet national or even international demand.
- Total assets: The total value of a company’s assets, including property, equipment, and inventory, is another metric used for classification. Large businesses often have a substantial asset base to support their large-scale operations.
- Market capitalization (public companies): For publicly traded companies, market capitalization (the total market value of their outstanding shares) is a relevant factor. While not a direct measure of size, it can indicate a company’s financial strength and influence in the market.
Characteristics of large businesses
Large businesses are distinguished by their substantial scale and operations compared to smaller companies. Beyond their size, several key characteristics define large businesses and contribute to their success in the market:
Workforce composition: They typically employ a large workforce with a higher concentration of specialized professionals compared to smaller businesses. This allows them to manage complex operations, conduct in-depth research and development, and offer a wider range of expertise within the company.
Technological integration: They often rely heavily on technology to automate tasks, streamline production processes, and enhance efficiency. Manufacturing companies, in particular, can be highly capital-intensive, utilizing advanced machinery, robots, and automation systems to increase output and reduce costs.
Financial strength and access: They have access to significant resources and capital. This financial strength allows them to invest in expansion, pursue research and development initiatives, and compete effectively in the market. Furthermore, they have better access to financing than small businesses. They can raise capital through the capital market by issuing stocks or bonds, diversifying their funding sources beyond traditional bank loans.
Favorable borrowing costs: Due to their perceived high borrowing capacity and lower risk of default, large businesses typically enjoy lower costs of funds compared to smaller companies. This allows them to secure loans at more favorable interest rates, further strengthening their financial flexibility.
Revenue generation: They typically generate substantial revenue, often from a diversified product portfolio. This can come from a variety of product lines or service offerings, which helps mitigate risk and provides a more stable income stream.
Formal legal structure: They typically operate under a formal legal structure. Depending on their ownership structure and goals, they may be registered as private limited companies or public limited companies. This provides a clear legal framework for operations and governance.
Structured organization: They have a well-defined organizational structure with clear divisions separating different business functions like marketing, finance, and human resources. Each department is staffed with specialized personnel who possess the necessary expertise to manage their specific area.
Broad market reach: Unlike smaller businesses that may focus on local markets, large businesses often target a broad market, operating nationally or even internationally. Some large businesses may even have production facilities or subsidiaries located in multiple countries, allowing them to cater to a global customer base.
Advantages of large businesses
Large businesses are not without their merits. They offer several advantages that contribute to economic growth, technological advancement, and societal progress:
Pioneering technological advancements: They have the resources to develop and implement advanced technologies. They can invest in research and development (R&D) for new products, processes, and cutting-edge technologies that benefit entire industries and consumers alike. This can lead to breakthroughs in fields like medicine, communication, and sustainable energy solutions.
Investing in innovation: They often have dedicated R&D departments that conduct extensive research and development. This ongoing innovation allows them to stay ahead of the curve in their respective markets, improve product quality, and develop new solutions to meet evolving customer needs. The ripple effects of this innovation can benefit entire industries and drive economic growth.
Economies of scale and cost advantages: They benefit from economies of scale. Due to their larger production volume, they can produce goods and services at a lower cost per unit. This translates to competitive pricing for consumers and allows large businesses to reinvest profits or offer lower prices.
Building global brands and market reach: They often have extensive marketing budgets and well-established brand recognition. This allows them to reach a global audience and build brand loyalty. Strong brands can create a competitive advantage and increase market share.
Attracting and retaining top talent: They can offer competitive salaries, benefits packages, and career development opportunities. This allows them to attract and retain top talent, which is crucial for innovation, efficient operations, and long-term success. A skilled and motivated workforce is a key advantage for any large business.
Shaping policy and market trends: Large businesses can significantly influence policy and market trends. Their economic power and lobbying efforts can influence government regulations and industry standards. While this influence needs to be balanced, large businesses can also play a positive role in shaping sustainable practices and promoting ethical business conduct.
Disadvantages of large businesses
While large businesses offer significant advantages, they also come with certain drawbacks that need to be acknowledged and addressed:
Bureaucracy and slow decision-making: Large organizations can become burdened by bureaucracy. Multi-layered management structures and complex approval processes can lead to slow decision-making. This can hinder agility and make it difficult to adapt to rapidly changing market conditions.
Reduced competition and potential monopolization: The dominance of large businesses can stifle competition in certain industries. This can lead to higher prices for consumers and less choice in the marketplace. In extreme cases, monopolization can occur, where a single large business controls a significant portion of a market, potentially harming consumers and innovation.
Environmental impact and sustainability concerns: Some large businesses’ large-scale operations can have a significant environmental impact. Issues like pollution and resource depletion need to be carefully addressed. Large businesses have a responsibility to adopt sustainable practices and minimize their environmental footprint.
Managing a large workforce: Effectively managing a large workforce can be complex. Large businesses need to address issues like employee morale, workplace diversity, and fair labor practices. Striving for a positive work environment is crucial for employee satisfaction, productivity, and the overall success of a large business.
