Investopedia
How do economies of scale work with globalization? By Sean Ross
Share
A:
Globalization – the integration of factors of production and inclusion of consumer groups from different markets around the world – facilitates unprecedented achievements of economies of scale for producers. Access to increased numbers of laborers, investors, markets, resources, technologies and business models through globalization can theoretically maximize productive efficiency to a level consistent with the size of the world's population.
Economies of Scale
Economies of scale refers to the phenomenon of diminishing marginal costs associated with each additional unit of output. A company experiences economies of scale as it specializes and is able to produce extra goods with fewer and fewer input costs.
According to economic theory, economies of scale are the natural consequence of specialization and the division of labor. It is one of the chief drivers of economic growth. However, firms do not realize economies of scale in perpetuity; there is a maximum level of efficient output for any given inputs, and operations may sometimes extend too far and cause diseconomies of scale.
Globalization
With access to new inputs and potentially more profitable markets, globalization can increase specialization and operational efficiency. The practical consequences of globalization include lower costs to consumers, access to capital for wealthy countries, access to jobs for poorer countries, increased competition and higher global productivity.
As globalization spreads the division of labor to a global scale, countries are able to export labor and production processes that they are relatively less profitable at and instead specialize in labor that is relatively more profitable. This result can be seen in factory jobs being driven out of the United States, which frees up capital for highly technical, highly productive fields such as IT. Companies are able to pursue higher degrees of efficiency and increase their economies of scale.
RELATED FAQS
What are some examples of economies of scale?
Take a look at different examples of economies of scale, including how marginal costs can be reduced through external and ... Read Answer >>
What is a diseconomy of scale and how does this occur?
Take a deeper look into diseconomies of scale, the economic phenomenon that can make companies less efficient as they become ... Read Answer >>
What's the difference between diminishing marginal returns and returns to scale?
Understand the main differences between the law of diminishing marginal returns and the concept of returns to scale through ... Read Answer >>
What's the Difference Between Economy of Scope and Economy of Scale?
Learn about economies of scope and economies of scale, the difference between the two economic concepts, and how they offer ... Read Answer >>
How is an economy formed and why does it grow?
Find out how an economy forms and why it grows, including the role that financial markets play and how productivity increases ... Read Answer >>
How does globalization impact comparative advantage?
Learn how comparative advantage is becoming increasingly relevant due to globalization and how this has affected both advanced ... Read Answer >>
Related Articles
Insights
What Are Economies Of Scale?
Is bigger always better? Read up on the important and often misunderstood concept of economies of scale.
Insights
Explaining Minimum Efficient Scale
Minimum efficient scale is the smallest amount of production a firm can achieve while still taking full advantage of economies of scale.
Managing Wealth
Is Pressing The Trade Just Pressing Your Luck?
Scaling up into a trade can be a lucrative strategy, but you need to understand the risks involved.
Investing
Explaining Economies Of Scale
Is bigger always better? Learn about the important and often misunderstood concept of economies of scale.
Trading
Effective Risk Control With Scaling Trading Strategies
Scaling strategies allow for greater risk control than simple entries or exits, letting traders seek the most advantageous prices available.
Insights
What Is International Trade?
Everyone's talking about globalization, learn what is it and why some oppose it.
Insights
One Reason Jobs Shrink: Superstar Companies
Are superstar companies that dominate their industries but employ relatively few workers to blame for labor’s falling share of GDP?
Insights
The World's Top 10 Economies
The United States has been the world's largest economy since 1871, but China's growth may soon position it as the leader of the world's top 10 economies.
Investing
Understanding Marginal Cost of Production
Marginal cost of production is an economics term that refers to the change in production costs resulting from producing one more unit.
Insights
Four Factors Supporting the Global Economy in 2016
The global economy enters 2016 on a promising note, with the growth pace forecast to be the fastest since 2011, thanks to a combination of four potent factors.
RELATED TERMS
Economies of Scale
Economies of scale refer to reduced costs per unit that arise ...
Scale Out
Scale out is the process of selling portions of total held shares ...
Law Of Diminishing Marginal Productivity
The law of diminishing marginal productivity is an economic principle ...
Production Efficiency
Production efficiency is a level at which the economy can no ...
Operational Efficiency
Operational efficiency is primarily a metric that measures the ...
Productivity And Costs
Productivity and costs refers to an economic data set that measures ...
Trending
What Are the Top U.S. Imports?
The Basics Of Tariffs And Trade Barriers
The 2018 ETF World Cup
How Do Interest Rates Affect the Stock Market?
A Stock Sell-Off Vocabulary Guide
Hot Definitions
Economies of Scale
Quick Ratio
Leverage
Financial Risk
Enterprise Value (EV)
Relative Strength Index - RSI
Work With Investopedia
About Us Advertise With Us Contact Us Careers
© 2018, Investopedia, LLC. All Rights Reserved Terms Of Use Privacy & Cookie Policy
Subscribe to:
Post Comments (Atom)
No comments:
Post a Comment