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This paper attempts to explain the competitive advantages of the small firm in the capabilities perspective. It begins by identifying the kinds of strategic assets possessed by small firms. It argues that entrepreneurship and a simple capital structure are the sources of dynamism for small firms. The relationship between the small firm's resources and its capabilities are then critically examined. In particular, the analysis focuses on the influences of strategic assets on the organizational flexibility ± a significant source of competitive advantage enjoyed by small firms. The competitive attributes of small firms are further discussed in terms of firm's internal and external capabilities. Finally, the relationship between the small firm's capabilities and the choice of technology strategies is examined.

Introduction
The significance and performance of small firms in economic development is well documented (see Berry and Mazumdar1991). Not only do large firms in general begin as small ones, but also regions specializing in high-technology products, such as Silicon Valley, frequently have high concentrations of technologically advanced small concerns. Small firms in the ‘Third Italy’ similarly operate at high levels of efficiency by international standards, even when they employ lower levels of technology. Small firms also dominate the Asian newly industrialized economies (NIEs), whose growth records have been among the best in the world in the period from the 1960s to the1980s. Specifically, the economic success of two Asian economies, namely Hong Kong and Taiwan, has been largely attributed to the dynamics of small firms (Liao and Kao 1995; Numazaki 1997; Sit and Wong 1989; Yu1997, 1998). Significant as small firm’s maybe, the origins of their competitive advantages have never been critically examined. Traditional neoclassical price theories are able to indicate that the dynamics of small firms lie in their flexibility, addictiveness and responsiveness. However, in Economics literature, the merits of small firms are largely explained inters of diseconomies of scale associated with the expansion of production. In recent decades, evolutionary theories of the firm, which synthesize transaction costs concepts, capabilities theories, strategic management and traditional industrial Economics, have opened a brand new world in analysingbusiness enterprises (see Conner 1991; Fosse al. 1995). This paper seeks to explain the competitive advantages of the small firm in the capabilities perspective. It begins by examining the resources owned by small firms and their associated internal co-ordination problems. It then looks at the relationship between the small firm’s resources and its capabilities. In particular, the analysis emphasizes the influences of strategic asset son organizational flexibility – a significant source of competitive advantage enjoyed by small firms. The last section of the paper investigates how small firms’ capabilities govern the choice of technology strategies.

References
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Andrews, K. (1980). The Concept of Corporate Strategy. Homewood, IL: Richard D. Irwin.
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