I. Are the sentences below “Right” or “Wrong”? If there is not enough information to answer, choose “Doesn’t say”.

1. The more the firms, the more concentrated the market is.

A. Right B. Wrong C. Doesn’t say

2. The simplest measure of industrial concentration involves summing up the market share of the largest companies existing on the market.

A. Right B. Wrong C. Doesn’t say

3. The degree of concentration only varies from one industry to another because of the differences in the extent of economies of scale.

A. Right B. Wrong C. Doesn’t say

4. In such categories as “clothing” and “toys and sports goods” there is not much room for many firms.

A. Right B. Wrong C. Doesn’t say

5. The degree of concentration on its own can’t reflect the situation in the market.

A. Right B. Wrong C. Doesn’t say

II. For each question, mark one for the answer you choose.

1. We can get some indication of how competitive a market is by

A. observing the number of firms.

B. analyzing activities of the companies in the market.

C. measuring the degree of competition.

2. The degree of concentration doesn’t depend on

A. barriers to entry of other firms into the industry.

B. transport costs.

C. history of the company.

3. Within each industrial sub-category

A. the number of companies increases.

B. there may be fewer companies producing similar goods.

C. there is enough space for many companies.

III. In most of the lines below there is one extra word. It is either grammatically incorrect or doesn’t fit in with the sense of the text. Some lines, however, are correct. If there is an extra word, write it out in CAPITAL LETTERS.

00 So is the degree of firm concentration a good guide to

01 the degree of competitiveness of the industry? The

02 answer is that it is some guide, but on its own it can be

03 misleading. In some particular it ignores the degree of competition

04 from abroad, and from others areas within the

05 country. Thus the five largest UK motor car vehicle manufacturers

06 may have produce 82.9 per cent of UK vehicle output,

07 but these manufacturers may face much considerable competition

08 from imported cars and lorries. On the other hand, the

09 five largest water suppliers may to account for only 49.7

10 per cent of UK production output, but with their own regions of the

11 country they should have a monopoly.

Competitive advantage and the small firm sector

The fact that many small businesses do survive, and some manage to grow, suggests that they must have some edge over their larger rivals. The following have been found to be the key competitive advantages that small firms might hold.

___ (1)

Small firms are more able to respond to changes in market conditions and to meet customer requirements effectively. For example, they may be able to develop or adapt products for specific needs. Small firms may also be able to make decisions quickly, avoiding the bureaucratic and formal decision-making processes that typify many larger companies.

Quality of service. Small firms are more able to deal with customers in a personal manner and offer a more effective after-sales service.

Production efficiency and low overhead costs. Small firms can avoid some of the diseconomies of scale that beset large companies. A small firm can benefit from: management that avoids waste; good labour relations; the employment of a skilled and motivated workforce; lower accommodation costs.

Product development. As we have seen, many small businesses operate in niche markers, offering specialist goods or services. The distinctiveness of such products gives the small firm a crucial advantage over its larger rivals. A successful small business strategy, therefore, would be to produce products that are clearly differentiated from those of large firms in the market, thereby avoiding head-on competition – competition which the small firm would probably not be able to survive.

___ (2)

Small businesses, especially those located in high-technology markets, are frequently product or process innovators. Such businesses, usually through entrepreneurial vision, manage successfully to match such innovations to changing market needs. Many small businesses are, in this respect, path breakers or market leaders.

Small businesses do, however, suffer from a number of significant limitations.

Problems facing small businesses

The following points have been found to hinder the success of small firms.

___ (3)

Small firms face many problems in selling and marketing their products, especially overseas. Small firms are perceived by their customers to be less stable and reliable than their larger rivals. This lack of credibility is likely to hinder their ability to trade. This is a particular problem for “new” small firms which have not had long enough to establish a sound reputation.

Funding R&D. Given the specialist nature of many small firms, their long-run survival may depend upon developing new products and processes in order to keep pace with changing market needs. Such developments may require significant R&D investment. However, the ability of small firms to attract finance is limited, as many of them have virtually no collateral and they are frequently perceived by banks as a highly risky investment.

___ (4)

A crucial element in ensuring that small businesses not only survive but grow is the quality of management. If key management skills, such as being able to market a product effectively, are limited, then this will limit the success of the business.

___ (5)

Small firms will have fewer opportunities and scope to gain economies of scale, and hence their costs are likely to be somewhat higher than their larger rivals. This will obviously limit their ability to compete on price.