PRINCIPLES OF

BUSINESS
UNIT 5 PRODUCTION
 SMALL BUSINESSES

Specific Objectives
• Describe the characteristics of a cottage industry
• Outline the functions of small businesses
• Discuss the advantages and disadvantages of small business
VIDEO
 COTTAGE INDUSTRIES

A cottage industry is one that takes place in people’s homes.

Cottage industries such as garment manufacturing are particularly
important in rural areas of the Caribbean. Cottage industries
benefit an economy by using local raw materials, they provide a
source of income for local people and may attract tourists who
want to buy craft products as souvenirs.
 CHARACTERISTICS OF COTTAGE INDUSTRY
Key feature Details
Home-based Workers can work from home rather than
in a factory.
Mainly manual People usually work with their hands, for
example by sewing, weaving or making
carpets.
Small-scale Workers use simple machinery such as a
sewing machine.
Uses local raw materials Materials are usually sourced locally
Uses family members as labour Cottage Industries often involve several
members of the same family who pass on
their skills to the next generation
 THE FUNCTIONS OF SMALL BUSINESSES

A common way to define a small enterprise in the

Caribbean is to consider the number of people employed.
For example, a micro enterprise might be one that
employs 1 to 5 employees while a small enterprise
employs 6 to 15 employees.
 Key Functions of a Details
Small Business
To create employment Small firms create jobs in many industries for example in tourism,
catering, farming and fishing, retail, textiles, electrical work and
plumbing, and ICT and web design.

To provide services that larger firms are not Small firms will provide services that large firms do not see as being
willing to provide worth their time, such as a dog walking service or a house cleaning
service.

To cater for niche markets
A niche market is a small segment of a larger market. It might for
example cover specific types of health food products, publications
about minority-interest sports or tennis coaching for left-handed
players. Small firms can dominate niches that large firms are not
prepared to cater for.
 ADVANTAGES OF COTTAGE INDUSTRIES

Earn income
Offer employment to family members
 Low costs - lower cost of production as work is done at home
Supplement regular income
Use local/recycled materials, e.g. plastic bottles, drinking straws
Provide a link with the tourist industry and craft market
industries
Allow creative abilities, skills and competencies to work rather
than allowing
them to remain dormant
 Flexible work hours, work at ones own pace
 Tasks do not require high levels of technology, equipment may not
be costly
 Satisfied customers due to personal touch
 Government support - Caribbean government encourages the
establishment
 of cottage industries as they provide products for tourists and
employment
Arrange major exhibitions and competitions
Provide skills training
Assist in marketing of products
Make factory space available
Provide financial support
 DISADVANTAGES OF COTTAGE INDUSTRIES
Small-scale operation will not benefit from economies of scale
Hard work and long hours required
Raw materials may be scarce or become endangered species,
e.g., certain turtle shells, animal hides or feathers
There is no work in slack period
Sometimes there is not a ready market for the product and self-
marketing is necessary
Prices in craft markets are sometimes not encouraging unless
there are advanced orders from buyers
 SUMMARY QUESTIONS

1. Define the term ‘cottage industry’.

2. Discuss two reasons why government support is needed for growth in this industry?
3. Identify and discuss two distinctive features of a small business compared with a large firm?
4. Why do small businesses thrive in rural areas compared with urban areas?

Form groups to discuss above questions then share your answers with the class.