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MGT601 - SME Management - Lecture Handout 02

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This lecture will throw light on the relationship between small and big business ,concept of SME’s in our region i.e. South East Asia and in Pakistan. It should give a student a clear idea about its definitions in these areas and will help him in differentiating the variable factors of labor, investment and production volume of our region in comparison with developed countries of Europe and USA.

The Relationship between Small and Big Business

Small businesses powerfully effected by developments within the big business sector this relationship serves the interest of general economic disequilibria. Small business is less affected by economic disruptions and is more or less self-adjusting. It tends to act as cushion for economy .The nature of interlink age between small and medium business is as under

  1. Job subcontracting i.e. the large business provides materials and components to small units who process the same into finished goods
  2. purchase subcontracting i.e. in this case the material is procured by small unit who manufactures a specific part or component needed by a particular large unit
  3. Complementary: in this case the product manufactured by small company is purchased by a big unit as accessory like plastic dust covers for video recorders, electronic passive components, packaging etc.
  4. Merchandising or commercial trading: in this case the small units manufacture the goods and big units on the strength of their financial power market it with their own brands like fans, washing machines, refrigerators etc.
  5. Maintenance and repair services: many large enterprises give the operation and maintenance contract to the small companies due to being more economical and helpful
  6. Social benefits: employment generation, decentralization of industrial benefits etc.

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MGT602 - Entrepreneurship - Lecture Handout 27

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  1. To understand the importance of the management team in launching a new venture.
  2. To understand the advantages and disadvantages of the alternative legal forms of incorporation.
  3. To explain the S Corporation and limited liability company as alternative forms of incorporation.
  4. To learn how to prepare a job analysis, job description, and job specification.
  5. To illustrate how the board of directors or board of advisors can be used to support the management of a new venture.


Potential investors are interested in the management team and its ability and commitment to the new venture. Investors usually demand that the management team not operate the business part- time while employed full time elsewhere. It is also unacceptable for the entrepreneurs to draw a large salary. The entrepreneur should consider the role of the board of directors and/or a board of advisors in supporting the management of the new venture.


There are three basic legal forms and one new form of businesses. The three basic forms are:

  1. Proprietorship.
  2. Partnership.
  3. Corporation

A new form is the limited liability company, which is now possible in most states. The entrepreneur should evaluate the pros and cons of each of the legal forms prior to submitting a business plan. He should determine the priority of several factors discussed below. It is also necessary to consider intangibles such as image to suppliers, existing clients, and prospective customers.

Read more: MGT602 - Entrepreneurship - Lecture Handout 27