External economies of scale
External economies (including economies of scale , English external economies of scale ) describe the reduction of production costs per unit within a sector that can be caused by several factors. These are usually independent of the individual company. They are also a reason for foreign trade and promote international rather than intra-national trade.
Alternative definitions
“The average costs depend on the production volume of a sector that consists of several individual companies. The benefits of degressive costs are realized through synergies across the entire sector. Reasons for this are e.g. B. technology transfer, human capital formation in the form of specific qualifications and the emergence of wholesale sectors. "
Reasons for External Economies of Scale
External economies of scale arise when several companies in an industry establish themselves in close proximity to one another. More than eighty years ago, Alfred Marshall (economist) studied and described these so-called “industrial districts”. He identified certain main reasons why a cluster of companies is more efficient than scattered individual companies. The most important of these are described below.
Specialized providers
The spatial concentration of a sector and its increasing size enable the existence of specialized intermediate and capital goods industries . Intermediate and capital goods are becoming cheaper due to increasing competition among specialized providers . As the industry grows, so does the number of nearby suppliers.
Knowledge externalities
Knowledge is a basic requirement for growth in innovative industries. The transfer of knowledge and technology increases with the size of a sector. In-house research and development, informal exchange with one another and dealing with competitor products can create specialist knowledge. This in turn has a positive effect on the development of production and average costs.
Workforce Pooling
The geographical density of specialized labor makes it easier for both employers and employees to find employees or employment. This advantage is also reflected in low production costs. As the industry expands, there are higher numbers of suitably qualified workers.
These reasons can only be found as soon as there is actually a large industry within a country.
classification
Economies of scale are called “economies of scale” or “increasing returns to scale”. A distinction is made between internal and external economies of scale, as there are considerable differences between the two. Internal economies of scale only occur at company level, while external ones occur at industry level. Increasing economies of scale mean decreasing production costs per production unit with increasing output. Economies of scale is to be seen as a generic term because it includes all advantages, such as discounts on larger purchase quantities, which result from the increasing size of the company, an industry or expansion at the country level.
example
If an industry starts with ten companies that each make forty products, that industry will make a total of 400 (10 × 40) products. Now if the same industry doubles, there are twenty companies that make forty products each. So there are a total of 800 (20 × 40) products. It is very likely that this will reduce the production costs that all companies have to deal with. This happens because special capital goods and services are offered to the manufacturing companies at lower prices. This reduces the costs for the entire industry and we speak of external economies of scale.
Individual evidence
- ↑ G. Dieckheuer: International trade and economic integration. Summer semester 2004.
- ^ A. Marshall: Principles of Economics. McMillan, London 1920.
- ↑ Krugman, Obstfeld: "International Economics: Theory and Politics of Foreign Trade" 7th edition Pearson Studium
- ^ A b Maennig, Wilfling: Foreign trade theory and politics. Verlag Vahlen p. 212.
literature
- Paul Krugman , Maurice Obstfeld: International Economics, Theory and Politics of Foreign Trade. 7th edition, 2007.
- Th. Sauer: International economic relations. FH Jena - FB BW - VWL III, Chapter 6.
- Maennig, Wilfling: Foreign trade theory and politics. Vahlen publishing house.