From 1970 to 1983, corporations expanded impressively in number, receipts, and a
ID: 1200387 • Letter: F
Question
From 1970 to 1983, corporations expanded impressively in number, receipts, and assets. In numbers and receipts, at least, the picture is dominated by firms with assets no more than one million dollars. Such firms doubled in number over the thirteen year period, accounting for more than 99 percent of the increase in all corporations; in 1983, they were over 91 percent of the total. And in sales, the proportion of corporations with less than one million dollars increased from three out of four to five out of six. Large corporations are not disappearing dinosaurs. Indeed, the share of all corporate assets held by those firms with more than $250 million in assets increased somewhat from 1970 to 1983. But the wave of the future may not be characterized so conspicuously by “bigness.” Liquidity and mobility of resources may be more important that economies of scale in manufacturing. We cannot know the future. We best shape the future not with concrete five-year plans of centralized direction, but by general fostering of economic opportunity. One manifestation of economic health is the vigorous formation of small firms. If the proportion of output produced by large firms increased, would it make a difference in analyzing the consequences whether that resulted from more small firms growing to become large forms or from the same large firms increasing their share of total output?
Explanation / Answer
Economies of scale are the cost advantages that enterprises obtain due to size, output, or scale of operation, with cost per unit of output generally decreasing with increasing scale as fixed costs are spread out over more units of output.Economies of scale apply to a variety of organizational and business situations and at various levels, such as a business or manufacturing unit, plant or an entire enterprise. For example, a large manufacturing facility would be expected to have a lower cost per unit of output than a smaller facility, all other factors being equal, while a company with many facilities should have a cost advantage over a competitor with fewer.
” Liquidity and mobility of resources may be more important that economies of scale in manufacturing.
As new technologies and globalisation reduce the importance of economies of scale in many activities, the potential contribution of smaller firms is enhanced. However, many of the traditional problems facing SMEs – lack of financing, difficulties in exploiting technology, constrained managerial capabilities, low productivity, regulatory burdens – become more acute in a globalised, technology-driven environment. Small firms need to upgrade their management skills, their capacity to gather information and their technology base. Governments need to improve SME access to financing, information infrastructures and international markets. Providing regulatory, legal and financial frameworks conducive to entrepreneurship and small firm start-up and growth is a priority. Fostering public-private partnerships and small-firm networks and clusters may be the most expeditious path to a dynamic SME sector. Grouped in local systems of production, SMEs can often be more flexible and responsive to customer needs than large integrated firms. They can pool resources and share the costs of training, research and marketing. Clustering facilitates exchange of personnel and diffusion of technology and creates new possibilities for efficiency gains. Importantly, these local networks and support systems can help SMEs meet the challenges of globalisation.
thus it is important to have small firms contributing to gdp a significant share of output.
If the proportion of output produced by large firms increased, it will surely make a difference in analyzing the consequences if that resulted from from the same large firms increasing their share of total output because with that small firms wont be able to prosper . there needs to balance between the two or a better and economic sustainable model would be small parts /raw materials being supplied by various small firms to these big firms.
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