Enterprise and Small Business Principles

Technological changes

The empirical evidence (Table 2.7) shows that business ownership rates generally began to increase in the 1980s. One reason for this is that technological change reduced the importance of economies of scale in production. Instead of the optimal form of tech­nology being mass production techniques similar to that first employed by Henry Ford, the introduction of new technologies (e. g. computer aided design, robots), organisa­tion processes (e. g. ‘just in time’) and management techniques (e. g. total quality man­agement) have had a profound impact on the cost structure of manufacturing. It has become increasingly possible for enterprises to operate at lower optimal sizes (Acs et al., 1990). Along with this ‘de-scaling’ (smaller-sized optimal plants), new technologies allowed for greater flexibility (Kaplinsky, 1990). This meant is that it was possible to produce much more efficiently smaller batches of manufactured goods (Carlsson, 1989).

Another impact of technological change is that ‘de-scaling’ and increased flexibility allowed smaller enterprises to enter sectors previously closed to them. It also meant that smaller enterprises had the potential to compete much more effectively against larger enterprises as there was little efficiency differences (Dosi, 1988). For example, Acs et al. (1991) found that: ‘in industries in which numerically controlled machines are extensively used, small firms have accounted for an increased share of subsequent sales in the market’ (p. 317). Piore and Sabel (1984) also argued that the new techno­logy offered distinct advantages to smaller enterprises. Based on a study of North Eastern and Central Italy (the ‘Third Italy’), they suggested that new technology allowed groups of autonomous smaller enterprises to network together for their mutual benefit. Because the industries in this area (e. g. textiles, clothing, shoes) required skilled craft labour, individual workers were able to quickly adapt to new product runs. Equally, the enter­prises themselves were able to share and coordinate management functions such as purchasing and marketing. New technology, therefore, allowed smaller enterprises to gain a competitive advantage because they were able to ‘flexibly specialise’.

A consequence of the introduction of new technologies is that it created new indus­tries. These new industries (e. g. microelectronics, biotechnologies and information com­munication technologies) have led to the notion that we have entered a fifth Kondratieff wave. These waves, lasting around 50 years, are said to bring with them profound eco­nomic change (Freeman, 1991). Hence, in the past, each of the previous four waves (iron, steam and cotton (1780s to 1840s); steel, coal, and the railways (1850s to 1890s); electricity, chemicals, the internal combustion machine and synthetic materials (1890s to 1930s); and electrical and light engineering, petrochemicals, and automotive manufacture (1940s to 1980s)), has markedly altered economic activity. Hence, one reason why business ownership rates may have increased is that, in the early years of a Kondratieff wave, newer and smaller enterprises are responsible for creating and diffusing new technologies.