When a company focuses on increasing its profitability by reaping cost reductions that come from economies of scale and location economies it is using a N ):?

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Which of the following statements is true about an international strategy?

A. International strategy typically involves taking products first produced for foreign markets and then customizing them for domestic markets.

B. International strategy should be pursued by a firm if it manufactures a product that satisfies local, rather than universal, needs.

C. When a firm pursues an international strategy, the head office of the firm retains fairly tight control over marketing and product strategy.

D. Firms pursuing the international strategy tend to outsource their development functions such as R&D.

E. International strategy should be pursued by a firm only if it faces strong competition in foreign markets.

What Are Economies of Scale?

Economies of scale are cost advantages reaped by companies when production becomes efficient. Companies can achieve economies of scale by increasing production and lowering costs. This happens because costs are spread over a larger number of goods. Costs can be both fixed and variable.

Nội dung chính

• What Are Economies of Scale?
• Key Takeaways
• Understanding Economies of Scale
• Internal vs. External Economies of Scale
• Limits to Economies of Scale
• Examples of Economies of Scale
• What Are Economies of Scale?
• What Causes Economies of Scale?
• Why Are Economies of Scale Important?
• When a company focuses on increasing its profitability by reaping cost reductions that come from economies of scale and location economies it is using a N ):?
• When a firm focuses on increasing profitability by customizing?
• Which of the following terms best represents the systematic reductions in production costs that have been observed to occur over the life of a product?
• Which of the following conditions would be most favorable for reaping global scale economies?

Key Takeaways

• Economies of scale are cost advantages companies experience when production becomes efficient, as costs can be spread over a larger amount of goods.
• A business's size is related to whether it can achieve an economy of scale—larger companies will have more cost savings and higher production levels.
• Economies of scale can be both internal and external. Internal economies are caused by factors within a single company while external factors affect the entire industry.

Explaining Economies Of Scale

Understanding Economies of Scale

The size of the business generally matters when it comes to economies of scale. The larger the business, the more the cost savings. Economies of scale can be both internal and external. Internal economies of scale are based on management decisions, while external ones have to do with outside factors.

Internal functions include accounting, information technology, and marketing, which are also considered operational efficiencies and synergies.

Economies of scale are an important concept for any business in any industry and represent the cost-savings and competitive advantages larger businesses have over smaller ones.

Most consumers don't understand why a smaller business charges more for a similar product sold by a larger company. That's because the cost per unit depends on how much the company produces. Larger companies can produce more by spreading the cost of production over a larger amount of goods. An industry may also be able to dictate the cost of a product if several different companies are producing similar goods within that industry.

There are several reasons why economies of scale give rise to lower per-unit costs. First, specialization of labor and more integrated technology boost production volumes. Second, lower per-unit costs can come from bulk orders from suppliers, larger advertising buys, or lower costs of capital. Third, spreading internal function costs across more units produced and sold helps to reduce costs.

A company can create a diseconomy of scale when it becomes too large and chases an economy of scale.

Internal vs. External Economies of Scale

As mentioned above, there are two different types of economies of scale. Internal economies are borne from within the company. External ones are based on external factors.

Internal economies of scale happen when a company cuts costs internally, so they're unique to that particular firm. This may be the result of the sheer size of a company or because of decisions from the firm's management. Larger companies may be able to achieve internal economies of scale—lowering their costs and raising their production levels—because they can buy resources in bulk, have a patent or special technology, or because they can access more capital.

External economies of scale, on the other hand, are achieved because of external factors, or factors that affect an entire industry. That means no one company controls costs on its own. These occur when there is a highly-skilled labor pool, subsidies and/or tax reductions, and partnerships and joint ventures—anything that can cut down on costs to many companies in a specific industry.

Limits to Economies of Scale

Management techniques and technology have been focusing on limits to economies of scale for decades.

Set-up costs are lower due to more flexible technology. Equipment is priced more closely to match production capacity, enabling smaller producers such as steel mini-mills and craft brewers to compete more easily.

Outsourcing functional services make costs more similar across businesses of various sizes. These functional services include accounting, human resources, marketing, treasury, legal, and information technology.

Micro-manufacturing, hyper-local manufacturing, and additive manufacturing (3D printing) can lower both set-up and production costs. Global trade and logistics have contributed to lower costs, regardless of the size of an individual plant. 

According the International Monetary Fund, the prices of both capital goods and the cost of machinery and equipment have been falling in emerging, developed, and even industrial countries for the past three decades.

Examples of Economies of Scale

In a hospital, it is still a 20-minute visit with a doctor, but all the business overhead costs of the hospital system are spread across more doctor visits and the person assisting the doctor is no longer a degreed nurse, but a technician or nursing aide. 

Job shops produce products in groups such as shirts with your company logo. A significant element of the cost is the setup. In job shops, larger production runs lower unit costs because the set-up costs of designing the logo and creating the silk-screen pattern are spread across more shirts. In an assembly factory, per-unit costs are reduced by more seamless technology with robots.

A restaurant kitchen is often used to illustrate how economies of scale are limited: more cooks in a small space get into each other's way. In economics charts, this has been illustrated with some flavor of a U-shaped curve, in which the average cost per unit falls and then rises. Costs rising as production volume grows is termed "dis-economies of scale." 

What Are Economies of Scale?

Economies of scale are the advantages that can sometimes occur as a result of increasing the size of a business. For example, a business might enjoy an economy of scale concerning its bulk purchasing. By buying a large number of products at once, it could negotiate a lower price per unit than its competitors.

What Causes Economies of Scale?

Generally speaking, economies of scale can be achieved in two ways. First, a company can realize internal economies of scale by reorganizing the way their resources—such as equipment and personnel—are distributed and used within the company. Second, a company can realize external economies of scale by growing in size relative to their competitors using that increased scale to engage in competitive practices such as negotiating discounts for bulk purchases.

Why Are Economies of Scale Important?

Economies of scale are important because they can help provide businesses with a competitive advantage in their industry. Companies will therefore try to realize economies of scale wherever possible, just as investors will try to identify economies of scale when selecting investments. One particularly famous example of an economy of scale is known as the network effect.

When a company focuses on increasing its profitability by reaping cost reductions that come from economies of scale and location economies it is using a N ):?

Firms that pursue a global standardization strategy focus on increasing profitability and profit growth by reaping the cost reductions that come from economies of scale, learning effects, and location economies; that is, their strategic goal is to pursue a low-cost strategy on a global scale. 24.

When a firm focuses on increasing profitability by customizing?

Localization strategy focuses on increasing profitability by customizing the firm's goods or services so that they provide a good match to tastes and preferences in different national markets.

Which of the following terms best represents the systematic reductions in production costs that have been observed to occur over the life of a product?

The experience curve refers to systematic reductions in production costs that have been observed to occur over the life of a product.

Which of the following conditions would be most favorable for reaping global scale economies?

The liberalization of the world trade and investment environment in recent decades, by facilitating greater international competition, has generally: Increased cost pressures. Which of the following conditions would be most favorable for reaping global scale economies? Low demand for local responsiveness.

When a company focuses on increasing its profitability by reaping cost reductions that come from economies of scale and location economies it is using a N?

When a firm focuses on increasing profitability by customizing?

Which strategy makes sense when pressures are high for local responsiveness but low for cost reductions?

Which are cost advantages from performing a value creation activity in the optimal location for that activity wherever in the world that might be?