Introduction of Large Scale Industries
A business can range from a single proprietor enterprise to a large corporation that employs thousands of workers across multiple countries. Based on the scale of business, organizations are classified as micro-enterprises, small-scale enterprises, large-scale industries, public enterprises, and multinational corporations.
Industries that require huge infrastructure and manpower with an influx of capital assets are Large Scale Industries. In India, large-scale industries are the ones with a fixed asset of more than one hundred million rupees or Rs. 10 crores.
The Indian economy relies heavily on such industries for economic growth, generation of foreign currency, and the creation of job opportunities for millions of Indians.
Large Scale Industries in India
The term ‘large-scale’ is generic in nature and includes different types of industries. In India, the following heavy industries fall under the purview of large scale industries:
- Iron and Steel Industry
- Textile Industry
- Automobile Manufacturing Industry
- Over the last two decades, Information and Technology (IT) industry has evolved and has contributed huge revenues while creating thousands of jobs for Indians. Hence, many economists include it in the large-scale industry sector.
- Telecom Industry
In recent years, as the markets opened up due to globalization, there has been a mixed effect on large-scale industries. Some have managed to attract international customers, foreign trade and technology, tie-ups. However, others were unable to cope with the competitiveness ushered in by the open market.
Production management involves the planning, organization, direction, and execution of production activities. The ultimate goal of any production management solution is to convert a collection of raw materials into a finished product. Some people refer to production management as the bringing together of the 6 'Ms.':
- Men
- Money
- Machines
- Materials
- Methods
- Markets
These constituents come together to provide consumers and businesses with products that they need or want.
The production management principles are often referred to as operation management principles, and they are designed to facilitate the production of goods that are of the required quality and quantity.
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.
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 localization.
3. Use of machines:
Large-scale production always makes use of machines. So, all the advantages of the use of machinery are available.
4. 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.
5. Economies of Organization:
With an increase in the size of the firm, the cost of management is reduced.
6. 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.
Disadvantages 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 organization 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.
4. Monopoly:
The large-scale production results in the localization 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 laborers 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 foreign markets. The foreign markets may be cut off by wars, etc. This makes the business risky.
Equipment Maintenance.
Workers on the line are best placed to deal with mechanical breakdowns and subsequent repairs. They can react to issues quickly and often without supervision, which allows the production process to restart far more quickly after a shutdown.
Pull Production.
In a bid to minimize inventory holding costs and production lead times, Toyota pioneered a system whereby the number of materials, labor, and energy expended at every stage of the process was solely reliant on the demand for products from the next stage of production.
Supplier Involvement.
Toyota demonstrated that treating component and raw material suppliers as integral components of their own production process led to several benefits. Suppliers were given training in Toyota processes, machinery, inventory systems, and set-up procedures. As a result, their suppliers were able to react positively and swiftly when problems occurred.
There are several benefits to implementing the basic principles of production management; they include a good reputation within a specific market and the ability to develop new products and bring them to the market quickly.
Companies like Toyota were able to take on the likes of Nissan and Ford in international markets because their innovative production management solution guaranteed quality for the consumer and lower costs for the business - and that's why the principles are now being implemented in manufacturing industries across the world.
Industrial Organization
Industrial organization is a field of economics dealing with the strategic behavior of firms, regulatory policy, antitrust policy, and market competition. Industrial organization applies the economic theory of price to industries. Economists and other academics who study industrial organizations seek to increase understanding of the methods by which industries operate, improve industries' contributions to economic welfare, and improve government policy about these industries. The "industrial" in an industrial organization refers to any large-scale business activity, such as tourism or agriculture — not just manufacturing. Industrial organization is also sometimes referred to as "industrial economy."
Understanding Industrial Organization
The study of industrial organization builds on the theory of the firm, a set of economic theories that describe, explain and attempt to predict the nature of a firm in terms of its existence, behavior, structure, and its relationship to the market. In 1989, economists Bent Holmstrom and Jean Tirole posed two simple questions for a theory of the firm. The first question was why do firms exist, meaning what is the need that they fill in society or an economic system. The second question succeeds the first and relates to determining the scale and scope of their operations. Answers to these two questions form the basis of industrial organization economics. Above all, the industrial organization focuses on how markets and industries compete with one another by factoring in real-world complications, such as government intervention in the marketplace, transaction costs, barriers to entry, and more.
Some believe that since microeconomics focuses on markets and how they operate, the industrial organization is a subset of it. Rather, the industrial organization is defined by its emphasis on market interactions, such as price competition, product placing, advertising, research and development, and more. More pertinently, the study of oligopolies (where a handful of big players dominate a market) gives the industrial organization its reason for being (whereas microeconomics focuses on perfect competition or extreme monopolies).
According to a Massachusetts Institute of Technology (MIT) white paper, it is easier to give an example of industrial organization than it is to define it, though the white paper's authors still managed to come up with this description: the "economics of imperfect competition." The imperfect competition referenced in this description gives rise to several questions relating to the success or failure of a product or an organization. By analyzing the factors that contributed to success or failure, the industrial organization attempts to answer these questions.
KEY TAKEAWAYS
- Industrial organization is an analysis of factors, operational or otherwise, that contribute to a firm's overall strategy and product placement.
- It involves a study of different areas, from market power to product differentiation to industrial policy, that affect a firm's operations.
Industrial Organization Areas of Study
Below is a sample listing of topics that the study of industrial organization can focus on:
- Market power
- Product differentiation
- Price discrimination
- Durable goods and experience goods
- Secondary markets and their relationship with primary markets
- Collusion
- Signaling
- Mergers and acquisitions
- Antitrust and competition
- Industrial policy
Industrial Organization and Policy
Several organizations exist to promote research and collaboration on the study of industrial organizations. One such organization is the Industrial Organization Society (IOS), founded in 1972 by Stanley Boyle and Willard Mueller to promote research on antitrust policy, regulatory policy, and competition and market power in real-world markets. The Review of Industrial Organization is the official journal of the IOS. The IOS has sponsored an annual International Industrial Organization Conference since 2003.
An industrial policy of a country is sometimes denoted IP, sometimes industrial strategy is its official strategic effort to encourage the development and growth of all or part of the economy, often focused on all or part of the manufacturing sector. The government takes measures "aimed at improving the competitiveness and capabilities of domestic firms and promoting structural transformation." A country's infrastructure (including transportation, telecommunications, and energy industry) is a major enabler of the wider economy and so often has a key role in IP.
Industrial policies are specific intervention measures for countries with mixed economies. Many types of industrial policies have common components to other types of intervention methods, such as trade policy. Industrial policy is generally seen as separate from broader macroeconomic policies, such as credit consolidation and capital gains. Traditional examples of the industrial policy include subsidizing export industries and import-substitution-industrialization (ISI), in which trade barriers are temporarily imposed on some key sectors, such as manufacturing. Some industries are given time to learn (learn by doing) and upgrade by selectively protecting them. Once sufficiently competitive, these restrictions are lifted to bring selected industries to the international market. More contemporary industrial policies include measures such as supporting relationships between firms and support for upstream technology.
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