economies of scope

Examples of economies of scope in the following topics:

• Mergers and Acquisitions (M&As)

  • M&As are a form of inorganic growth.
  • Factors that matter include lower costs–shared activities, shared resources, economies of scale or scope-, and increased willingness to pay.
  • The Better Off Test in the context of horizontal scope: Can a firm achieve lower average costs or higher average prices by including multiple business units in same firm?
  • Economies of scope (aka, synergies) make product diversification efficient if they are based on a similar common use.
  • Diversify if (cost of having units A & B in same firm) < (cost of unit A in firm A) + (cost of unit B in firm B) - Boost in Willingness To Pay (aka, cross-selling) - Diversify if (WTP of activities A & B if done in same firm) > (WTP of activity A in firm A) + (WTP activity B in firm B)

• Considering Company Size

  • This definition underscores why it is important for companies to identify the factors of the organization that determine its ideal structure—most specifically the size, scope, and operational initiatives of the company.
  • Companies may adopt one of six organizational structures based upon company size and diversity of scope of operations.
  • This structure works well for large organizations pursuing economies of scale, usually through production of a large quantity of homogeneous goods at the lowest possible cost and highest possible speed.
  • A divisional structure is also a framework best leveraged by larger companies; instead of economies of scale, however, they are in pursuit of economies of scope.
  • Economies of scope simply means a high variance in product or service.

• Infant Industry Argument

  • Economic markets are inherently competitive, and newer economies are highly vulnerable to their more developed counterparts in other countries for a variety of reasons.
  • The primary advantage to countries with higher economic power and bigger corporations is simply economies of scale and economies of scope, in addition to being further along the experience curve.
  • The reason for this is quite simply the significant jump in prosperity as international trade expanded, and the huge capacity for specialization, economies of scale, technology sharing, and a host of other advantages that have been a direct result of free global markets.
  • The problem still remains, however, that this prosperity is often unregulated and of the greatest benefit to the influential players in established economies, sometimes at the expense of exploitation of developing nations (cheaper labor, reduced governmental oversight, etc.).
  • The basic premise behind economies of scale is that higher production quantity reduces cost per unit, ultimately allowing for the derivation of economic advantage in the market.

• Mixed Economies

  • A Mixed Economy exhibits characteristics of both market and planned economies, with private and state sectors providing direction.
  • A mixed economy is an economic system in which both the state and private sector direct the economy, reflecting characteristics of both market economies and planned economies.
  • Most mixed economies can be described as market economies with strong regulatory oversight, in addition to having a variety of government-sponsored aspects .
  • While there is not one single definition for a mixed economy, the definitions always involve a degree of private economic freedom mixed with a degree of government regulation of markets.
  • Subsequently, some mixed economies have expanded in scope to include a role for indicative economic planning and/or large public enterprise sectors.

• Porter's Competitive Strategies

  • These three strategies are defined along two dimensions: strategic scope and strategic strength.
  • Strategic scope is a demand-side dimension and considers the size and composition of the market the business intends to target.
  • He originally ranked each of the three dimensions (level of differentiation, relative product cost, and scope of target market) as either low, medium, or high and juxtaposed them in a three-dimensional matrix.
  • Cost leadership pertains to a firm's ability to create economies of scale though extremely efficient operations that produce a large volume.
  • Market segmentation is narrow in scope (both cost leadership and differentiation are relatively broad in scope) and is a cross between the two strategies.

• Scoping Your Speech

  • Make sure that only the most relevant information is including in the speech, so the scope of your speech does not become too wide.
  • Scope refers to the extent of the area or subject matter that something deals with or to which it is relevant.
  • One way to effectively scope a speech is to think of the question: "What information do I want my audience to know at the end of the speech?
  • Scoping a speech is not only helpful for the audience, but is also to the benefit of the speaker.
  • By narrowing the scope of the speech, the speaker improve the speech's ability to effectively communicate essential information to the audience.

• Differences Between Strategic Planning at Small Versus Large Firms

  • MNEs (multinational enterprises) may employ a more structured strategic management model due to its size, scope of operations, and need to encompass stakeholder views and requirements.
  • From a strategic point of view, this involves creating a system of quality control, reporting, and localization that maintains the competitive advantage of scale economies and strong branding.
  • Large firms such as McDonald's often achieve better scale economies and thus can pursue low-cost strategies.
  • SMEs (small and medium enterprises) may employ an entrepreneurial approach due to its comparatively smaller size and scope of operations and limited access to resources.
  • In most cases, low-cost strategies require substantial economies of scale.

• Scoping Your Topic

  • Once you have generated a variety of ideas, it is time to narrow the topic to ensure it fits the scope of your speech.
  • Scoping your topic is the process of identifying the important subtopics that form the parameters of your speech.
  • What you need to do is establish the scope of your engagement with the topic of your speech by breaking it into the important parts.
  • If you have a shorter amount of time, you will need to narrow the scope of your speech.
  • Scoping your topic will not only make the writing of the speech easier, but by narrowing the scope of your speech, you also increase the likelihood that your speech will effectively communicate with the audience.

• The Scopes Trial

  • The Scopes Trial of 1925 brought to national attention the debate over teaching evolution in public schools.
  • John Thomas Scopes, the "Scopes Monkey Trial" of 1925 was a landmark American legal case in which John Scopes was accused of violating the state's Butler Act by teaching evolution in a state-funded school.
  • Prominent attorney Clarence Darrow spoke in defense of Scopes by presenting the Modernist argument in favor of the Theory of Evolution.
  • Scopes was the defendant in the famous Scopes Trial of 1925, which provided a forum in which to argue the teaching of evolution in public schools in schools.
  • Inherit the Wind, a 1960 film starring Spencer Tracy, dramatized the Scopes Monkey Trial of 1925.

• The Importance of Productivity

  • From a broader perspective, increased productivity increases the power of an economy through driving economic growth and satisfying more human needs with the same resources.
  • Increased gross domestic product (GDP) and overall economic outputs will drive economic growth, improving the economy and the participants within the economy.
  • As a result, economies will benefit from a deeper pool of tax revenue to draw on in generating necessary social services such as health care, education, welfare, public transportation and funding for critical research.
  • This can potentially reduce price points and minimize the necessary working hours for the participants within an economy while retaining high levels of consumption.
  • The final important consideration in assessing productivity potential is the production-possibility frontier (PPF), which essentially outlines the maximum production quantity of two goods (in the scope of our current technological capacity and supply).