Fundamentals of the Economic Enterprise and Firm Structure
Item 1: Introduction to the Firm
The Concept of the Economic Enterprise
The company is currently one of the fundamental pillars of the economic system. From an economic standpoint, the company is the “basic unit of production.” Families are economic agents whose primary function is consumption, but they also provide some of the factors of production.
Classification of Companies
Companies can be classified based on several criteria:
Classification by Size
Criteria: Number of employees / Annual Turnover / Total Assets
- Micro: 0–9 employees / ≤ €2 million turnover / ≤ €2 million assets
- Small: 10–49 employees / ≤ €10 million turnover / ≤ €10 million assets
- Medium: 50–249 employees / ≤ €50 million turnover / ≤ €43 million assets
- Large: Over 250 employees / > €50 million turnover / > €43 million assets
Other Classification Criteria
- By activity (primary, secondary, tertiary)
- By geographic scope (local, provincial, regional, national, community, multinational)
- By capital ownership (private, public, mixed, cooperative)
Company Objectives
The ultimate goal of the company is the first level in the hierarchy of objectives and defines the mission of the company as an economic unit. It expresses the goals the company wishes to achieve long term and serves as the starting point of business activity.
- Objectives: Targets the company aims to achieve over a given period, selected after analyzing the environment.
- Sub-objectives: Concrete, short-term goals that support the achievement of main objectives.
Conflict of Interest
The company is a complex entity, consisting of various groups and elements. Each of these groups may have different objectives that conflict with each other.
The Value Chain
The value chain is a form of business analysis where a company breaks down its global activity into different parts, aiming to identify sources of competitive advantage in value-generating activities.
Elements of the Company
- Human and Personal Factors: These are the natural or legal persons who have a direct link to the company, including capital owners, partners, shareholders, and workers.
- Material Factors: These are the economic assets of the company. Some last more than one fiscal year (fixed assets), while others are involved in the operating cycle and are renewed annually (current assets).
- The Organization: This appears as a set of authority relationships, coordination, and communication, which structure the activity of the human group internally and externally.
- The Environment: This refers to all those external factors affecting the performance of the entrepreneur and, consequently, the company.
Company Functions
To achieve its goals and objectives, the company undertakes various activities and production processes, which are the result of a series of functions performed by different areas. These include:
- Commercial Area: Includes all activities required to deliver the produced goods and services to consumers.
- Production Area: Controls the supply of raw materials and manages the production of goods and services.
- Investment and Financing Area: Responsible for capturing the necessary funds for operation and managing the investment policy.
- HR Area (Human Resources): Its functions are to select and hire employees, train, and organize all personnel.
Firm Location and Size
Location Factors
Factors influencing location include:
- Market demand
- Provision of raw materials
- Labor market
- Transportation and supplies
- Cost of construction
- Legislation
- Investment and finance
- Regional economic development
Size (Dimension)
Size refers to the firm’s production capacity, determined by factors such as technology, the number of workers, or the market. An increase in size is referred to as growth.
Internal Growth
Refers to increasing production capacity through new investments made by the company.