Are Small Firms More Likely to Produce Major Innovations than Large Firms?

Name of the university
Entrepreneurship and innovation

Contents
Introduction................................................................................................................................1
Findings......................................................................................................................................3
Analysis......................................................................................................................................6
Conclusion..................................................................................................................................6
References..................................................................................................................................8
Appendix....................................................................................................................................8

Introduction
The relative innovativeness of large and small firms has been a controversial topic from
ages. The objective of this essay is to analyse whether the statement “Small firms are more
likely to produce major innovations than large firms” is correct or not.
This essay portrays the possible sources of relative gains for small and large firms with
admiration to innovation. The relative benefits of large firms deceits generally in
resources, while relative benefits of small firms are usually debated in terms of social
characteristics. Small firm and large firm both have their own ways of innovation. Small
firms and large firms are expected to play balancing roles in the procedure of
innovative advancement to prove that, they are well at different sorts of innovation. In this
essay we will critically analyse on the possible relative advantages or disadvantages of small
and large firms with respect to innovation
Large Firm’s Advantages & Disadvantages
It is not easy to distinct the impact of market control and size of the firm, as they both are
correlated. It has been debated that businesses owning monopoly would be extra
motivated to innovate, as they have better understanding of rewards from innovation.
Firms comprehending monopoly benefits should finance its research & development from
internal sources. As in external financing it is mandatory to disclose information about the
project (Vossen, n.d.).
Risk of Execution: Larger companies can distribute the risks of execution of RESEARCH &
DEVELOPMENT by sustaining a diversified range of innovative projects. Due to financial
market imbalance, large firms could easily get finance, as they are less likely to go bankrupt.
Lastly, large firms might be in a healthy position to get the outcome of its research labours
(Vossen, n.d.). For example, the worth of innovative productivity may be better for a large
firm which is operating with well-built marketing channels. These firms could be decently
sound in technology and provide the company a large scale of production, or stemming from
a greater output of researchers.
Specialised Research & Development Team: As a large division of specialised researchers’
increases the probability of unexpected innovations and it also reduces the efforts of finding
the best solution for a problem (Vossen, n.d.). The relative strength of large firms is mainly

material, as they have the power to make bulk purchase. There are the major advantages of
large firms through which it can get economies of scale (Getrevising, n.d.).
However, it also has some disadvantages too, which could result as diseconomies of
scale.
Absence of Proper Communication, for example, if a firm becomes too big, there might be
failures in communication, which may result in delay in decision making
Reduction in the level of confidence & motivation, among the staff, as it is hard to
maintain personal connection with them due to improper communication (Getrevising, n.d.).
Small Firm Advantages & Disadvantages
Flexibility, Small firms are more flexible, as they have the freedom to make the changes
anytime without the consultation of stakeholders to ensure its survival
(Igcseedexceleconomics, n.d.).
Uniqueness, Small firms garner a lot of trustworthiness with today’s clienteles, if they
produce something distinctive. In the present market, it acts as a major advantage to such
firms (Igcseedexceleconomics, n.d.).
Focus, Small firm’s focus is relatively narrow, which is a good thing, as they know precisely
where they are most likely to be, whereas, large firms have to search wide to find
opportunities.
Research &Development, small firms more efficiently take benefit of the knowledge that
corporate research & development laboratories and universities possess (Economicshelp,
2016).
Expertise, Small firms are likely to have more focus on the operations and skill set of its
employees as it perform small scale tasks. This provides a major advantage: - by operating at
small scale it allows the firm to have personal contact with the clients and helps in
understanding their requirements much better (Economicshelp, 2016).
Disadvantages of small firms
Less effective than big firms, Big firms can earn profit from economies of scale in
production, which allow them to sell at a lower cost, whereas, only a few small firms succeed
in attaining economies of scale (Igcseedexceleconomics, n.d.).
Lack of resources, Small firms lacks in financial resources to invest in research &
development (Igcseedexceleconomics, n.d.).