Sustainable Need for Economies of Scale
Description:
Economies 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:
- WTO
- Decreasing transport costs
- Investment incentives attracting investors to low-cost-labour countries
- Advanced communication technologies - easier management of a transnational corporation
- Growing demand for products
- Competition pressuring lower prices
Inhibitorss:
- Cultural differences/conflicts
- Anti-globalization forces
- Culture differences make against communication.
- Reducing Tariff Wall improves the cost. Sometimes because of political issues, especially high tariff may hold back the economics of scale.
- Economies of scope as an opposite term. Co-operations among different companies could also help lower the cost.
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 economies of scale is an efficient way to achieve this goal thus finally gain stronger competition ability.
Experts:
Timing:
This term has be brought forward for a long time and now is widely used. It should play an important role in the future.