Large Firm: Economies and Disadvantages

After reading this article you will learn about the economies and disadvantages of large firm.

Economies of Large-Scale Operations:

Different economies available to a large firm may be summed up as under:

Technical Economies:

1. Large firms can install new machines, automatic appliance and adopt other means of superior technology because it is economical to do so if they are set for large-scale production.

2. Large firms can reap the full benefits of specialisation through scientific division of labour.

3. Large firms can afford to earmark funds for conducting technological research and experimentation in order to find out better and cheaper methods of production.

4. Large firms have adequate resources to enroll the services of experts, to plan guide and execute the manufacturing operations without any hindrance.

5. Large firms can also realise economies from bulk purchase-contracts for building up adequate stocks of raw materials etc. so that the continuity of the firm’s operations is not disturbed.

6. Large firms can think of utilising by products, acquiring patent rights over innovations, etc.

Managerial Economies:

1. A large firm can employ managerial experts at the top level of management so that the firm functions efficiently under rational regulation. Complicated problems of finance, labour, marketing, administration can well be tackled by managers of superior attainments. Such brilliant executives can be appointed by large firms, since they have adequate resources to pay them and their scale of operations being large there will be sufficient work for them.

2. Large firms are in a position to introduce modern appliances like calculating machines, dictating machines, computers, etc. to save time and to improve the services to the customers.

3. Large firms would be able to introduce elaborate division of labour in functional arrangement of business activities of the firm.

4. Large firms can go ahead provide they have already qualified cadre of managerial executives and experts.

Financial Economies:

1. Large firms can have greater access to money and capital markets. They can mobilise resources on easy and economical terms regarding rate of interest, repayment of borrowed money etc. through banks and other financial institutions.

2. Large firm can set aside sufficient amount for depreciation and replacement of assets.

3. They can adopt new techniques of planning and proper control of utilisation of funds through budgeting, costing, management, accounting etc. which are new methods of bringing about financial discipline.

4. Large firms can afford to plough back substantial part of their profits for further expansion.

Marketing Economies:

1. Large firms can realise economies arising from bulk-sales. Marketing- costs in case of larger volume of sales would be relatively less per unit of output.

2. Large firms can make use of services of experts in marketing and talented salesmen.

3. Such firms can afford to spend sizable amount on advertising and under­take sales promotion efforts so as to step up the rate of turnover.

4. If a firm is handling different lines of products, the same salesmen can canvas sales of the different products without additional costs.

5. Large firms can render better services to customers and build up goodwill and business prestige.

6. Large firms can withstand competition in the market.

In short, because of the economies explained above large firms will be in a better competitive and bargaining position compared to small firms. Lesser costs, higher production, larger sales, superior techniques, better services, surer stability are the advantages of large firms.

Disadvantages of Large Firms:

Notwithstanding the various economies enjoyed by the large firms there are certain limitations inherent with their size.

Large firms suffer from following limitations because of their size and the difficulty in tackling the technical, managerial and human problems arising there from:

1. Large firms tend to be bureaucratic and there may be red tapism in its administration.

2. There is no scope for personal initiative, enterprise and skill since the administrative and operational procedures are minutely standardised.

3. In case of large firms it is not possible to develop personal contact with the customers.

4. Existence of large firms lead to concentration of economic power within few hands.

5. Large firms tend to grow monopolistic through consolidation or integration.

6. Oligarchic hold of large firms over the economy leads to exploitation of consumers in the form of higher prices, abnormal profits, artificial cuts in supply etc.

7. It becomes unwieldy to manage large-sized firms due to difficulty of coordination and control.

8. In times of cyclical fluctuations or in the event of sudden or swift changes in the trends of demand or in technology, large firms find it hard to adjust their organisations to new situation.