Fortune 500 Company Analysis in a Capitalistic

Fortune 500 Company Analysis

In a capitalistic society such as America, business is very important in regards to the countries overall prosperity. Business is the driver of innovation, employment, cash inflows and a higher quality of life for all stakeholders involved. In this coming election year, employment and business is of particular interest to both political parties. Both parties realize the importance of business in regards to the growth of America. Both large and small businesses will be critical to this growth. The opportunities that are presented to both these segments will be important as the country continues to innovate and grow.

To begin, what is considered, "small" in regards to business? The Small Business Administration has established two widely used size standards which include 500 employees for most manufacturing and mining industries and $7.0 million in average annual receipts for most nonmanufacturing industries. However, many exceptions exist. Below are just a few listed on the SBA website which includes: 100 employees for all wholesale trade industries, $31 million in receipts for heavy construction industries, and $13 million in receipts for all special trade contractors?

A very important aspect of small business is its employment figures. 50.6% of all employees in America are employed at a small business. These businesses typically have 500 or less employees. As such, small business is very important to the American economy as 50% of its workforce is employed by this segment. Many small business preference programs have been enacted to maintain the viability of this business segment within the overall economy. For example, within the state of Maryland, the small business preference plan (SBP) was established to help in the procurement of supplies in construction related services. The construction sector is very important to Maryland because it employees a vast amount of its residents (Birch, 1979). The programs were established to help companies better afford supplies and other construction related items. For example, if a Small Business vendor could bid $104.99 and if the lowest "non-Small Business" bid was $100.00; the Small Business would be awarded the contract.

Another example of a preference program is in Washington State with its Small Business and Local Preference Program (SBLPP).Much like the Maryland example above, this program was designed to enhance the available contracting opportunities for small businesses in the District of Columbia, State of Maryland, and Commonwealth of Virginia. The program targets and gives preference to, "qualified small businesses in the procurement of goods and services when Metro awards contracts for non-federally funded purchases of $150,000 or less (Metro, 2012)."

In many industries size is not as important as the underlying business operations of the firm. In many instances size can be a detriment to operations. It contributes to the layers of bureaucracy that creates a slow innovating organization. Management must be able to respond quickly in negotiation proceedings. Smaller, more nimble companies are in a position to do so more adequately (Birch, 1987). Their larger counterparts however, are at a disadvantage as they are slow to realize contracting opportunities. Furthermore, management may be out of touch with many of the underlying operations that are occurring at the "front lines" of the organization. During contract negotiations, a very common issue that arises is that of price. Size is important in many industries that rely on "economies of scale" in their production processes and contract negotiations this includes industries such as steel manufacturing, oil drilling, aluminum production and more. These businesses are commodity type businesses. This means there is very little differentiation between the steel of one company from the steel of another. Under these circumstances, size is very important. Economies of scale are accomplished in companies with a wide array of potential distribution networks. With many distribution networks, companies can produce and ship products more cheaply on a per unit basis. As such, companies with economies of scale have a distinct competitive advantage relative to their small business peers. It is this economy of scale that allows capital expenditures to be minimal compared with competitors (Edmiston, 2010). This increase efficiency reduces carrying costs associated with inventory while also providing better customer service by reducing errors. Further, economies of scale provide a means to distribute the product anywhere, thus expanding the faculties' presence within the market. Large companies therefore, have a distinct competitive advantage relative to their small business peers.