Advantages of Small Scale Production

 

Advantages of Small Scale Production Developing personal relationships relation ships : Small businesses are well placed to build personal relationships with customers, employees, and suppliers. With a small business you know who you are dealing with; you can 'put a face' to the person you are in contact with. Person-toperson interaction is as important as eer in building strong relationships. Responding flexibly to t o problems and challenges : !n a small business there is little hierarchy or chain of command. "arge businesses may hae set ways of operating and establish procedures that are hard to change. Small businesses are often far more fle#ible. !t can also reach a $uick decision on whether or not it can do what is re$uired. Inventiveness and innovation: Small businesses are well positioned to introduce and deelop new ideas. %his is due to their owners not haing to report or seek approal from anyone else. &or e#ample, when nita nita (oddick set up %he )ody Shop, she deeloped a range of enironmentally enironme ntally friendly cosmetics in unsophisticated packaging. %his would hae been frowned on in a conentional cosmetics company. company. Low overheads: *ue to the small scale of operation, small businesses hae lower oerhe oerhead ad costs. %hey operate in small premises with low heating and lighting costs, and limited rent and rates to pay. "ow costs result in lower prices for consumers. atering for limited or niche mar!ets: "arge firms with high oerheads must produce high leels of output to spread costs. )y contrast, small firms are able tto o make a profit on much lower sales figures. %hey can therefore sell into much smaller markets: e.g. a local window cleaner sering a few hundred houses, a specialist +ewellery maker with personal clients. "ature of Demand: %he small producer has an adantage oer the large producer, when the demand is either small or is constantly changing. e has thus a sphere of his own where he has an adantage oer the large scale producer. #ore $mployment: !n the face of large scale unemployment e#isting in the country, the deelopmentt of cottage and small scale industries is of great help to create more deelopmen employmentt opportunities. Small scale production is more labor-intensie i.e., there is more employmen use of labor than machinery. %hus, many unemployed persons are employed in the newly deeloped small scale industries. "eed of small apital: %he small scale production can be started with small capital. Where there is shortage of capital, the small scale industries are of great adantage for the deelopmentt of industries. deelopmen Direct Relation between the %or!ers and the $mployers: !n small scale production less workers are employed. %herefore, a close relationship e#ists between the employer and the workers. )ecause of this close relationship, the employer can look after the well-being of his employees and employees, too, consider their work as their own and the work goes on smoothly without any disputes between the two parties. Direct Relation between the ustomers and the Producers: %he small scale producers generally cater to the local demand. ence, they remain in touch with their customers.  small producer personally knows his customers. %herefore, %herefore, he can produce goods according to the taste and fashion of each indiidual customer customer.. $asy #anagement: %he management of small business is easy and economical. Simple accounts and a few persons can manage the +ob well. &reedom of %or!: %here is complete freedom of work in a small business organiation. Workers Wo rkers are more or less self-sufficient. %hey are not dependent on the capitalists and carry on their +obs freely.

 

$xternal $conomies: %he small scale production secures all kinds of e#ternal economies, which are aailable to large units also. %hese economies are: better transport, electricity, electricity, and communication facilities; banking and insurance serices; technical workers, etc. "o $vils of Large Scale Production: %he small scale production cannot fall ictim to the eils of the large scale production i.e., eils of the factory system, oercrowding, etc.

Disadvantages of Small Scale Production 'igh ost of Production:  %he cost of production per unit increases because there is a high cost of labor, a ery little scope for diision of labor and lesser use of machinery. %astage of (y)products: !n the small scale production, it is not possible to make economic use of the by-products, as in the large scale production. )y-products of the small producers generally go waste. Less *se of #achines: !n the small scale production, there is less scope for the use of machines. s a result, these firms cannot take t ake adantages of the use of the machinery machinery.. Lac! of Division of Labor: !n the small scale industries, the sie of production is small, and there is lack of diision of labor and less profits to the entrepreneurs. Difficulty in +etting Loans:  !t cannot en+oy the financial economies. &unds are either not aailable and if aailable, they hae to pay higher rate of interest. Difficult to &ace $conomic risis:  )ecause of the limited resources and financial weakness, the small scale producers cannot face economic crisis. %he producers do not hae the capacity to bear losses for long. !n fact, under a small economic crisis, many small factories are closed down. ostly Raw #aterials: !n the small scale production, raw materials are purchased in small $uantities which are aailable to the small producer at higher prices. Lac! of Standardi,ed +oods: %he $uality of goods is not standardied or up to the mark in the small scale production. !t is difficult to sell goods because of their low standard and inferior $uality. -ld .echni/ues: !n the small scale industries, the production is undertaken with the help of old techni$ues or old and obsolete machines. !t is not within their capacity to bear the risk of installing new machinery. Lac! of Research: %he small scale industries hae limited means at their disposal. %hey cannot spend much on research in the field of science and technology. !n this way, the small scale industries are a hurdle in the way of technical research and, industrial deelopment. Difficult to &ace ompetition with Large Scale Producers: !f some large scale producers enter the market, the small producers find it difficult to compete with them. %he small producers perish at the hands of the large scale producers.

 

Advantages of Large Scale Production economiess arise within the firm because of the e#pansion of the Internal $conomies: !nternal economie sie of a particular firm. %hey are called the economies of scale. $xternal $conomies: #ternal economies arise with the e#pansion of the industry. %hese are generally the result of large scale production and are associated with the adantages of localiation. Division of Labor: %he large scale production is always associated with more and more diision of labor. With With the diision of labor per worker output increases. ence, per unit labor cost is reduced in large scale production. *se of machin m achines: es: %he large scale production always makes use of machines. So, all the adantages of the use of machinery are aailable. #ore Production: %he large scale industries can produce more goods. &or instance, a big sugar factory can use molasses to make spirits and thus can reduce the cost of production of sugar. $conomies of -rgani,ation: With an increase in the sie of the firm, the cost of management is reduced. Low ost of Production: %he large scale production gies many types of economies. Suppose, there are two different factories, each producing /00 units of a commodity. &or these two factories, there must be two managers. )ut if the scale of production is enlarged and in one factory we start producing 1000 units of the same commodity, commodity, the work can be superised by one manager. !n this way, in the large scale production, the salary of one manager is saed. So, the cost of production is reduced. heap and $asy Loans:   large business can secure credit facilities at cheaper rates, because these firms en+oy credit and reputation in the market due to their fi#ed assets. )anks and other financial institutions willingly adance loans to these enterprises at a ery low rate of interest. Ancillary Industries: With the deelopment of large scale production, there arise many small industries which use its by-products or supply inputs to it. Suppose, when the production of steel is increased, many other au#iliary industries deelop. %he deelopment of au#iliary industries contributes to the industrialiation of the area and the industry itself. Standard +oods: %he production of standardied goods is possible on account of the largescale production. 2nly a big motor company can produce standardied motor parts. )esides, it is possible to sell and transport these goods to distant places only by big business houses. houses. Advertisement and Salesmanship Salesmanship::  big concern can afford to spend large amounts of money on adertisement and salesmanship. 3ltimately, they do bear fruit. %he amount of money spent on adertisement per unit comes to a low figure when production is undertaken on a ery large scale. %he salesmen can make a careful study of the indiidual markets and thus ac$uire a hold on new markets or strengthen it on the old ones. %hus, a large scale producer has a greater competitie strength. Research:  %he large scale production is conducie for the deelopment of technology also. With larger amount of capital and financial resources, the large scale firms can afford to spend more on research and e#periments which ultimately lead to the discoery of new machines and cheaper techni$ues of production. $conomy of (uying and Selling:  large concern usually buys things in large $uantities and therefore, at low rates. !t also sells things in large $uantities and can secure better terms. $conomies of Indivisibility: 4any factors of production are not perfectly diisible. &or instance, assume that one machine can produce 100 units of a commodity, but we are

 

producing only /0 units by that machine. %he machine is indiisible. !f the scale of production is increased and we start producing 100 units, per unit cost will be reduced. %his is the economy of the indiisible machines.

Disadvantages of Large Scale Production $vils of &actory &actory System: %he large scale production is accompanied by all the eils of the factory system like oer-crowding oer-crowding,, density, pollution, pollution, bad morals, etc. *irty habits of drinking and gambling spread ery easily. Danger of -ver)Production: %he large scale organiation results in oer production at times, so demand cannot be properly estimated. t last, prices fall and depression sets in. Less Supervision:  large scale producer cannot pay full attention to eery detail in arious departments. 5osts often rise on account of the dishonesty of workers. %hus, due to inefficient and inade$uate superision, the cost of production goes up. #onopoly: %he large scale production results in the localiation of industries. s a result, the bigger fish swallows the smaller ones, and cut-throat competition and monopolies result. lass Struggle: %he large scale production gies rise to class struggle, the struggle between the laborers and the capitalists. %heir interests cannot go together together,, as they are ery different from each other. s a result, there is a struggle between the two groups. Dependence on &oreign #ar!ets:  large producer has generally to depend on the foreign markets. %he foreign markets may be cut off by wars, etc. %his makes the business risky. Possibility of %ar: %he large scale production increases the possibilities of wars. )ig producers make attempts to sell their goods in the foreign markets and try to capture them by fair and foul f oul means, thereby e#posing the world to wars and struggles. Lac! of Adaptability: s huge capital is inested in the large scale production, it is ery difficult to bring about a change in the scale of production according to the circumstances. Individual .astes Ignored: %he indiidual tastes and interests stand completely ignored in large scale production. 6oods of uniform $uality are turned out irrespectie of the re$uirements re$uiremen ts of the indiidual customers. !ndiidual tastes are not, therefore, satisfied. %his results in the loss of customers to other competitors. *ne/ual Distribution of %ealth: ll wealth and incomes of the country get concentrated in the pockets of big producers due of to the large scale production. %here is rich une$ual distribution of wealth and resources on account large scale production. %he become richer and the poor become poorer.