Business Dimension, Growth, and Competitive Advantage

Understanding Corporate Dimension and Growth

Defining Corporate Dimension

The magnitude or size of a business is primarily defined by its production capacity.

Distinguishing Dimensions

• Dimension of the Factory or Farm (Techno-Economic Unit): Refers to the installation size for a particular product.
• Global Dimension (Economic and Financial Decision Unit): Represents an integrated set of factories, warehouses, and other assets.

Dimension and Market Demand

Every company must offer the market the required quantity of its product. Therefore, if there are changes in demand, the production capacity should be reviewed and adjusted accordingly.

Criteria for Business Dimension Classification

Different criteria are used to classify firms by their dimension, leading to various classifications:

• Number of Employees:
  • Micro-enterprises: Less than 10 employees
  • Small enterprises: Under 50 employees
  • Medium enterprises: Less than 250 employees
  • Large enterprises: More than 250 employees
• Volume of Sales or Income: (Often used in conjunction with employee count)
• Volume of Production:
• Equity or Net Assets: Comprises capital contributed by partners plus retained earnings.
• Total Resources (Total Assets): Includes both own resources and external funds, reflecting net annual profits after deducting interest and taxes.

Company Objectives and Growth Strategies

Core Company Objectives

Key objectives for most companies include:

• Maximizing profits
• Achieving growth and market power
• Ensuring stability and adaptability to the environment
• Fulfilling social responsibility

Understanding Business Growth

When an enterprise acquires a strong position in the market, development becomes its natural progression and a core vocation.

Strategic Directions for Growth

Business growth can be oriented in various directions, depending on the company's strategic responses to key questions:

• Specialization vs. Diversification: Should the company focus on its core activities or expand into new products and businesses?
• Internal vs. External Growth: Should growth be achieved using its own resources, or by pooling resources with other companies (e.g., mergers, acquisitions)?
• Domestic vs. International Expansion: Should the company remain focused on the domestic market or internationalize its operations?

Advantages of Growth: Economies of Scale

Optimum Company Size

The optimum size of a company is that which allows it to produce at the lowest possible cost per unit.

Achieving Cost Reduction

This optimal cost is achieved through economies of scale. Economies of scale originate from the reduction of average cost or unit cost as the company grows and increases its production volume.

Conclusion: Large Company Competitiveness

In conclusion, large companies often gain significant economic advantages. These advantages enable them to lower the prices of their products, thereby becoming more competitive in the market.