Economics of scale

Description:

Economics of scale is a term that is used to describe the reduction in cost-per-unit as more units are produced. Nowadays, more and more companies try to utilize the advantages of other countries in the whole world to enlarge their business scale and as a result reduce the cost of their products and services. This trend accelerates the steps of "Global Village" because economics of scale requires the company to extend its sight into all over the world. The entire world but not only one single country is its factory that it could get resources and materials in one country, produce the products in another country and finally deliver the products to any other country.

Enablers:

- Different countries have their own characteristics such as cheaper labor cost, more abundant natual resources, higher technology and large amounts of expertises. All companies want to facilitates these advantages to reduce the cost.

- Getting above information is no longer a difficulty for most companies because of the development of Internet and some technologies such as data mining. Companies could get quite a large amount of information through Internet and using data mining, they could find out what they exactly needed. Then it could compare the advantages and disadvantages among different countries to analyze the best way of realizing economics of scale.

- Development of transportation network such as airplane, train, car, ship, subway, etc. So delivery of raw materials, resources, experts, labors and products could get to any place in the world in short period. Besides, this kind of fee is becoming lower.

- More advanced communication method such as mobile phone and email that makes the management of transnational company more easy and efficient. Exchanging information and opinions among managers in different countries is no longer a problem that it looks like they are working in the same country.

- Co-operations among different companies make economics of scale more easier. They could learn from others' strong points to offset and strengthen their market competition.

- Improvement of producing technology, process or equipment makes production more efficient and thereby reduce the cost per unit product.

Inhibits:

- Culture differences make against communication.

- Tariff wall improves the cost. Sometimes because of political issues, especially high tariff may hold back the economics of scale.

Paradigms:

In such a business world full of intensive competition, every enterprise plans for achieving sustainable competitive advantage over, or reducing the edge of, its adversaries. In order to gain such advantage, a firm must provide comparable value to the customer but perform activities more efficiently than its rivals what means it must have cost leadership or at least its cost should be lower than most rivals. Utilizing economics of scale is an efficient way to achieve this goal thus finally gain stronger competition ability.

Experts:

Definition of Economics of scale
Journal of Economic Education