Reasons why businesses grow..……Conventionally, people ascribe businesses successes or failures to fate/chance or certain environmental conditions including family background. Even though one could not entirely rule out the influence of changes in the environmental factors, the entrepreneur’s positive attitude, discipline, skills, competences , resilience and experience are real factors determining the transition of an enterprise form state up to a fully grow or diversifies venture.
Researchers have shown that more than half of all businesses fail in less than two years of commencement. Also, a large number of those businesses that survive the first two years hardly grow. It is only few businesses that survive, grow, regenerate and even create other businesses. Conventionally, people ascribe businesses success or failures to fate/chance or certain environmental conditions including family background. Even though one could not entirely rule out the influence of changes in the environmental factors, the entrepreneur ‘s positive attitude, discipline, skills, competences , resilience and experience are real factors determining the transition of an enterprise form state up to a fully grow or diversifies venture.
The question often asked is what motivates people commit to starting and growing their businesses. Usually, entrepreneurs tend to make critical investments, take acceptable risks and learn consistently because of their desire to make money and enjoy all the rights and privileges that come along with wealth. Other reasons include improved social status and well-being, greater opportunity for philanthropy and community services, and gaining control over their own destiny. Employees attribute increase in income/benefits and advancement with businesses that grow. Government tends to favor business growth because it lessens unemployment and social tension in addition to raising more revenue from taxes. Thus, it is in the best interest of business owners and other stakeholders in the society for businesses to grow and flourish because growth tends to create social and economic value for all. On general note, start ups and small businesses generate employments opportunities. ILO (2007) estimated that about 70% of the people in sub- Saharan Africa rely on small and informal establishment for their livelihood. For example I’m South Africa, the share of employment provided by SMEs sector is estimated at 60% and generated about 40% output (Lukacs, 2005). In Botswana, small business contributed between 30-45% to the nations GDP and accounted for more than 60% of wage employment. Thus, any increase in the activities of small enterprises will lead to corresponding increase in employment.
Reasons why businesses grow
As employments are generated, the increase productivity raises the level of wealth creation is a given economic environment. This is why the productiveness of an economy is related to increasing income and improving standards of living. Businesses combine human and material resources to create value. So, as activities of enterprises increase due to increase in labour productivity and efficient use of resources, all things being equal lead to high wages for individual worker, more profit for the company and rise in GDP for the nation. When productivity is higher, cost of production tends to be lower. With lower cost of production, citizens obtain products cheaper and these, in turn, increase living standards.
There are many reasons that help to explain the motivations for businesses to grow
Reasons why businesses grow
1. Profit motive:
- Businesses grow to achieve higher profits and provide better returns for shareholders
- The stock market valuation of a firm is influenced by expectations of future sales and profit streams so if a company achieves disappointing growth figures, this can be reflected in a fall in the share price. This opens up the risk of a hostile take-over and also makes it more expensive for a quoted company to raise fresh capital by issuing new shares.
2. Cost motive:
- Economies of scale the long run increase the productive capacity of the business leading to lower average costs. They help to raise profit margins at a given market price.
3. Market power motive:
- Firms may wish to increase market dominance giving them increased pricing power
- This market power can be used as a barrier to the entry of new businesses in the long run
- Larger businesses can build and take advantage of buying power (monopsony power)
4. Risk motive:
- Growth might be motivated by a desire to diversify production and/or sales so that falling sales in one market might be compensated by stronger demand in another sector
- This is known as achieving economies of scope and is a feature of conglomerates.
5. Managerial motives:
Behavioral theories of the firm predict that business expansion might be accelerated by senior and middle managers whose objectives differ from major shareholders.
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