Read this article to learn about the advantages and disadvantages of large scale production:
(a) Advantages of Large Scale Production:
The following are the merits of large scale production:
1. Internal Economies:
Internal economies arise within the firm because of the expansion of the size of a particular firm.
They are called the economies of scale.
2. External Economies:
External economies arise with the expansion of the industry. These are generally the result of large scale production and are associated with the advantages of localisation.
3. Division of Labour:
The large scale production is always associated with more and more division of labour. With the division of labour per worker output increases. Hence, per unit labour cost is reduced in large scale production.
4. Use of machines:
The large scale production always makes use of machines. So, all the advantages of the use of machinery are available.
5. More Production:
The large scale industries can produce more goods. For instance, a big sugar factory can use molasses to make spirits and thus can reduce the cost of production of sugar.
6. Economies of Organisation:
With an increase in the size of the firm, the cost of management is reduced.
7. Low Cost of Production:
The large scale production gives many types of economies. Suppose, there are two different factories, each producing 500 units of a commodity. For these two factories, there must be two managers. But if the scale of production is enlarged and in one factory we start producing 1000 units of the same commodity, the work can be supervised by one manager. In this way, in the large scale production, the salary of one manager is saved. So, the cost of production is reduced.
8. Cheap and Easy Loans:
A large business can secure credit facilities at cheaper rates, because these firms enjoy credit and reputation in the market due to their fixed assets. Banks and other financial institutions willingly advance loans to these enterprises at a very low rate of interest.
9. Ancillary Industries:
With the development 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 auxiliary industries develop. The development of auxiliary industries contributes to the industrialisation of the area and the industry itself.
10. Standard Goods:
The production of standardised goods is possible on account of the large-scale production. Only a big motor company can produce standardised motor parts. Besides, it is possible to sell and transport these goods to distant places only by big business houses.
11. Advertisement and Salesmanship:
A big concern can afford to spend large amounts of money on advertisement and salesmanship. Ultimately, they do bear fruit. The amount of money spent on advertisement per unit comes to a low figure when production is undertaken on a very large scale. The salesmen can make a careful study of the individual markets and thus acquire a hold on new markets or strengthen it on the old ones. Thus, a large scale producer has a greater competitive strength.
The large scale production is conducive for the development of technology also. With larger amount of capital and financial resources, the large scale firms can afford to spend more on research and experiments which ultimately lead to the discovery of new machines and cheaper techniques of production.
13. Economy of Buying and Selling:
A large concern usually buys things in large quantities and therefore, at low rates. It also sells things in large quantities and can secure better terms.
14. Economies of Indivisibility:
Many factors of production are not perfectly divisible. For instance, assume that one machine can produce 100 units of a commodity, but we are producing only 50 units by that machine. The machine is indivisible. If the scale of production is increased and we start producing 100 units, per unit cost will be reduced. This is the economy of the indivisible machines.
(b) Disadvantages of Large Scale Production:
The following are the demerits of large scale production:
1. Evils of Factory System:
The large scale production is accompanied by all the evils of the factory system like over-crowding, density, pollution, bad morals, etc. Dirty habits of drinking and gambling spread very easily.
2. Danger of Over-Production:
The large scale organisation results in over production at times, so demand cannot be properly estimated. At last, prices fall and depression sets in.
3. Less Supervision:
A large scale producer cannot pay full attention to every detail in various departments. Costs often rise on account of the dishonesty of workers. Thus, due to inefficient and inadequate supervision, the cost of production goes up.
The large scale production results in the localisation of industries. As a result, the bigger fish swallows the smaller ones, and cut-throat competition and monopolies result.
5. Class Struggle:
The large scale production gives rise to class struggle, the struggle between the labourers and the capitalists. Their interests cannot go together, as they are very different from each other. As a result, there is a struggle between the two groups.
6. Dependence on Foreign Markets:
A large producer has generally to depend on the foreign markets. The foreign markets may be cut off by wars, etc. This makes the business risky.
7. Possibility of War:
The large scale production increases the possibilities of wars. Big producers make attempts to sell their goods in the foreign markets and try to capture them by fair and foul means, thereby exposing the world to wars and struggles.
8. Lack of Adaptability:
As huge capital is invested in the large scale production, it is very difficult to bring about a change in the scale of production according to the circumstances.
9. Individual Tastes Ignored:
The individual tastes and interests stand completely ignored in large scale production. Goods of uniform quality are turned out irrespective of the requirements of the individual customers. Individual tastes are not, therefore, satisfied. This results in the loss of customers to other competitors.
10. Unequal Distribution of Wealth:
All wealth and incomes of the country get concentrated in the pockets of big producers due to large scale production. There is unequal distribution of wealth and resources on account of the large scale production. The rich become richer and the poor become poorer.