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, the generation of foreign currency, and the creation of job opportunities for millions of Indians.
LARGE-SCALE INDUSTRY, 1850–1950 The term “large-scale industry” refers to factories that combine at least three characteristics: use of machinery, employment of wage labor, and the application of regulatory measures such as the Factory Act or Disputes Act. These features were of recent origin in nineteenth-century India and, to a large extent, products of British colonial rule. In employment statistics, the units registered as “factories” under the Factory Act can be considered a large-scale industry. In reality, the registered factories included a fair number of units that did not employ machinery, but with few exceptions, registered factories did possess the other two features.
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
It is important to note that these industries are either manufacturing units or those which use both indigenous and imported technologies. Here are some more examples:
Fertilizer, Cement, Natural gas, Coal, Metal extraction, Metal processing, Petroleum, Mining, Electrical, Petrochemical, Food processing units, Tourism, Banking, Sugar, Construction, Automobile, Communication equipment, Cement, Chemicals, Earthmovers, Consumer durables (like television, refrigerators, etc.), Engineering products, Vehicle assembly, Beverages, Agricultural processing, Insurance, and Finance.
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.
An efficient production management solution will also deliver products at the time they are required by the market at the lowest achievable cost. Any successful production management solution requires the optimum utilization of production capacity to reduce costs to a minimum.
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 reduce the cost of sugar production.
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.
7. Ancillary Industries:
With the development of large-scale production, there arise many small industries which use their 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 industrialization of the area and the industry itself.
8. Standard Goods:
The production of standardized goods is possible on account of large-scale production. Only a big motor company can produce standardized motor parts. Besides, it is possible to sell and transport these goods to distant places only by big business houses.
9. Research:
Large-scale production is conducive for the development of technology also. With a larger amount of capital and financial resources, 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.
10. 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.
11. 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, the unit cost will be reduced. This is the economy of the indivisible machines.
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.
7. Possibility of War:
Large-scale production increases the possibilities of wars. Big producers make attempts to sell their goods in 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 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:
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 the unequal distribution of wealth and resources on account of large-scale production. The rich become richer and the poor become poorer.
Primary Principles of Production Management
Shorter set-up times.
By their nature, all set-up processes result in waste; they tie up labor and equipment without adding value. Training, improved efficiency, and giving workers accountability for their own set-ups allowed Toyota to slash their set-up times.
Small-scale production.
Cutting the cost and time spent on set-ups allows a company to produce goods in smaller batches and according to demand. This results in lower set-up, capital, and energy costs.
Empowering employees.
Dividing a workforce into small teams and giving them accountability for housekeeping and various other tasks has been shown to improve efficiency. Teams are assigned leaders, and the workers within those teams are trained on maintenance issues – allowing them to deal with delays in the production process immediately.
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.
Reducing costs at every stage of the production process provides the main benefit of cutting a company’s overall costs. A manufacturer obviously does not want to incur costs when there are no orders, and an effective production management solution – such as the one pioneered by Toyota – should make that an achievable goal.
Because firms adopting the principles of production management can keep a tight lid on their costs, they can have a competitive edge in the market, and that can allow them to grow far more quickly than would otherwise be the case.
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.
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 antitrust policy, regulatory policy, 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.
