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Comparison of the Relative Advantages of Large-Scale Production and Small-Scale Production


The scale of production relates to the size of a business organization. Before the Industrial Revolution, production was carried on a small scale. But after the Industrial Revolution, production is carried on a large-scale. it is more or less the rule in modern industries. Some industries such as steel, coal, textiles and cement generally have large-scale production. We have small-scale production largely in retail trade and agriculture. The scale of production depends on many things such as the nature of the industry, the nature and size of the market, the ability of the entrepreneur and the amount of capital available for the industry.

Large-scale Production

With the introduction of machinery on a large-scale and availability of capital, large-scale production has become the rule in most of the industries in modern times. Most of the well-organized industries in our country such as coal, iron and steel, sugar, cement and cotton textiles have large-scale production. There are certain internal economies and external economies in large-scale production. Internal economies relate to the economies enjoyed by an individual firm by its own organization on efficient lines. External economies are available to the industry as a whole. There will be several firms in an industry under competition. For instance, if an industry is localized in a place, all the firms in the industry will enjoy certain external economies.

Advantages of Large-scale Production

  1. The efficiency of a firm in modern times depends mainly on the extent to which division of labor is practiced in int. under large-scale production, there is the advantage of a better division of labor. There is the economy of labor.
  2. There is the economy of capital. A large firm can command greater credit facilities than a small firm. It can afford to buy up-to-date and expensive machinery.
  3. It enjoys economies in the use of materials and power. For instance, the waste materials can be converted into valuable by-products.
  4. It enjoys marketing economies. That is, in buying and selling, the large firm has some advantages. Since it buys raw materials and other things in large quantities, it can buy at cheaper rates than small firms can. While selling goods also, it can charge a lower price. By this way it can sell more goods and thereby make more profits.
  5. There is a keen competition in every industry. The success of a firm depends to a great extent on its advertising capacity. A large firm will have enough capital to spend on advertisement. Not only that, it can afford to spend money on experiment and research.
  6. Lastly, a large firm will have great resistance in times of bad trade. It will manage to survive. In other words, it has a greater staying power than a small firm.

Disadvantages of Large-scale Production

  1. There are limits for the expansion of the size of the business. If the size increases beyond a certain limit, management becomes difficult.
  2. In places where production is carried on a large scale, conflict between labor and employers is a common feature.
  3. Modern production is carried on is anticipation of demand. In a firm where there is large-scale production, if something goes wrong with the calculation of demand, there will be a great loss not only for the employers but unemployment problem will be created for a large number of people.
  4. A large firm where labor and capital are highly specialized cannot adapt itself to changes easily.
  5. There is the danger of some of the large firms combining themselves into monopolies. And when once they grow into monopolies, they will exploit labor and consumers.

In spite of some of the demerits, large-scale production has certain definite advantages. But there are limits to the growth of a firm beyond a certain point.

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Small-scale Production

Though large-scale production is the rule in many industries, we find that many other industries are carried on a small scale. These small firms have managed to survive in spite of the emergence of many large firms after the Industrial Revolution. In fact, it is popular in many countries such as Japan, Switzerland and India. Small-scale production is common in retail trade and also in those fields where direct services are rendered to the consumers. Where there is ‘one-man’ business or partnership, usually we will find small-scale production.

Advantages of Small-scale Production

  1. If the scale production is small, personal supervision of work is possible. The employer will take personal interest in production. A small producer will give close attention to the details.
  2. There is personal element in business carried on a small-scale and that is necessary where one satisfies local demand. Generally, in firms where there is large-scale production, standardization of commodities is the rule. There, they cannot satisfy individual tastes. But an individual shoe-maker can make a pair of shoes according to the special requirements of his customers.
  3. Machine-made goods are not always good substitutes for hand-made goods. For instance, certain goods of artistic quality can be made only by hand. In such cases, there is a great scope for small firms.
  4. Suppose the demand for the good of a small firm is affected on account of a change in tastes and fashions, a small firm can adapt to the change. Standardization of products is not good for those commodities, which have irregular demand. Small firms are ideal for the production of such goods.
  5. There will be direct contact between the employer and the laborers. This promotes industrial peace.

Disadvantages of Small-scale Production

  1. Business of small firm cannot expand in a big way.
  2. It cannot enjoy the economies of large-scale such as marketing economies, economy of capital, economy of labor, economy of materials and so on.
  3. It cannot convert its waste materials into valuable by-products.
  4. It cannot withstand a big business crisis.
  5. Lastly, it cannot compete with big firms.


Small-scale and cottage industries are of great importance for the economic development. They will go a long way in solving unemployment problem in a country, particularly unemployment in the rural side. But it is unfortunate that they are in poor shape in many countries. If they develop on proper lines, they can provide a large number of jobs for they are labor intensive. In some countries like Japan, they have what is known as “common production programs”. That is, certain goods will be produced jointly by small-scale industries and large-scale industries. For instance, take a car. Some parts of it will be made by the large-scale industry and some other parts by small-scale industry. The common production programs have helped the Japanese people to bring down the cost of production of many goods in Japan. The ideal size of production should be neither too small nor too large. A firm must be of the optimum size. The unit of production is said to be at its optimum size when the costs are at the minimum. The optimum size of a firm varies from one industry to another.

© 2013 Sundaram Ponnusamy

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