Small Firms, Large Concerns - Review

Administrative Science Quarterly,  June, 2001  by Sharon A. Alvarez

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Konosuke Okada and Minoru Sawai, eds. New York: Oxford University Press, 1999. 314 pp. $70.00.

Since the 1980s, there has been a growing interest in small firms. One of the critical unanswered questions in this field is whether small firms can be analyzed with the same theories as large firms. Some scholars have argued that small and large firms are simply different types of economic governance devices and thus should be analyzed with the same theoretical tools (Meyer and Heppard, 2000). Others have argued that unique aspects of small firms--in particular, the special role that entrepreneurs can play in small firms--necessitate the development of theories designed to understand small firms (Venkataraman, 1997). Unfortunately, the research reported in Small Firms, Large Concerns, an edited volume based on the 24th International Conference of Business History in 1997, is inconsistent in its approach to addressing the issue. Some chapters analyze small firms using the same theoretical tools that are used to analyze large firms. Other chapters treat small firms as a distinct phenomenon by focusing on the r ole of entrepreneurs in these organizations. Thus, while each chapter in the book generates insights in its own defined area, the book as a whole fails to have the kind of impact it could have if it had taken a consistent approach in addressing the small-firm large-firm question.

In the preface of Small Firms, Large Concerns, the editors tell us that two questions motivated the volume: When are small businesses important, and how is a national economy affected by small businesses? These are thought-provoking questions that would have benefited from the insights of the elegant and rich historical analysis in Small Firms, Large Concerns, but several chapters in this book fall short of addressing these questions by not analyzing small firms as distinct from large firms. The editors' argument is that small business can and should be historically examined within the context of big business, which they consider the dominant paradigm. In fact, the editors call business the antonym of big business. In a Chandler-esque fashion, Small Firms, Large Concerns explores the historical role of small business in North America, Japan, and Western Europe. The book offers an excellent historical account of small business and the role small business has played in the world's economic development in the pa st. It also does a good job of illustrating the historical interdependence between big and small business. Still, the reader is left feeling that the journey is not clear and the path is uneven.

The chapter by Scranton takes the perspective that the study of small firms can only be legitimized using the same theories as for large firms. The author suggests that small firms have been marginalized in history when compared with large firms, yet the lens that he uses in analyzing small firms is a large-firm lens. Like all the chapters in this book, the historical detail is wonderful. This chapter tells a story about the informal lending practices of Chinese immigrants in the U.S. and makes theoretical connections between the lending practices of ethnic groups and their collective identity as immigrants. Then the author discredits the chapter's legitimacy by suggesting that the practice of informal lending cannot be found in today's modern business start-up experience (p. 27), contrary to recent work by Butterworth (2000), who found that as much as 70 percent of small businesses today are funded with the assistance of friends and family members. Today's informal lenders, just like their historical counter parts, don't usually expect interest payments or equity in the firm. Linking the contemporary funding sources of small business to the history of ethnic immigrants would have given us insight into a modern economic phenomenon. Instead, it focuses on why large firms seem dominant in U.S. history. The shortcoming of the chapter is its treatment of small firms as "victims" of a historical lens focused on large firms.

Blackford's chapter also takes the perspective that small and large firms can use interchangeable theories. This chapter does a good job of elaborating on public policy implications and its effects on attitudes about small business in the U.S. Then it concludes by suggesting how historical themes in small business influence big business management today. Transitioning from describing historical attitudes about small business to the possible applications to big business, the author muddies the water by introducing the term entrepreneurship. Few would argue that entrepreneurship is the creative process by which new organizations come into existence. Yet at this juncture it is important to ask whether small firms, by definition, are necessarily entrepreneurial firms. Second, and particularly important to this chapter, is whether entrepreneurship is limited to small firms or whether it can be applied to large firms. To merely suggest that small business and entrepreneurship are synonymous is insufficient to expla in the phenomenon of entrepreneurship. To suggest that entrepreneurship can be transferred to large firm practices is an empirical question beyond the scope of this chapter.