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¶ … precisely what is meant by economies of scale, Identify factors which give rise to that effect. How important are economies scale in a firm's a motivation to merge?
On an individual level, many consumers are familiar with the concept of buying in bulk, to take advantage of cheaper prices. From a retailer's perspective, economies of scale are even more advantageous, as economies of scale can result in massive cost savings, which can then be passed onto the consumer. Economies of scale thus enable the consumer to buy products at cheaper prices, and for the retailer to pocket a larger profit. As well as buying in bulk, large companies have the advantage of being able to buy the most sophisticated and cutting edge technology available, which can result in further savings in the costs of production. Growing in size also gives the company access to greater specialized and diversified knowledge, as more people come to work at the entity. Economies of scale allow a company to differentiate, given its expanded access to labor, as it can deploy more workers in different specialized facets...
Improved knowledge resources and specialized labor enables a more efficient chain of command and the ability to use operations more effectively to increase production (Heakel 2010).
Economies of scale can thus convey a tremendous advantage for organizations, and can give existing large entities a tremendous advantage over small competitors. It is difficult to secure financing to compete against a major market player; and a small company will frequently have to pay its workers less; cannot buy in bulk; cannot afford or has less access to technological innovations, and is only developing relationships with suppliers and creating an organizational chain of command.
Being a first or early mover in an emerging marketplace for a desirable good or service can help many companies secure an 'economy of scale' advantage. Some examples of such first movers include Coca-Cola and Google. These large entities operating on economies of scale now have an additional advantage given that their brand name is now synonymous…
References
Elmerraji, Jonas (2010). The merger: What to do when companies converge. Investopedia.
Retrieved November 26,
2010 at http://www.investopedia.com/articles/basics/06/themerger.asp
Heakel, Reem. (2010). What are economies of scale? Investopedia. Retrieved November 26,
2010 at http://www.nytimes.com/2010/11/24/dining/24coffee.html?_r=1&ref=dining
The successful firms have the war chest, and often this was acquired through strong long-term planning. Thus, successful firms have the ability to build upon that success during economic downturns, which sets them up to be in an even stronger position when the next downturn strikes. Works Cited: Becton, B., & Schraeder, M. (2009, January). Strategic Human Resources Management. Journal for Quality & Participation, 31(4), 11-18. Retrieved May 5, 2009, from
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