Sunday, September 20, 2009
Economies of scale occur when a company gets to decrease its operational costs as the firm enlarges and its production units of a single product grow whereas economies of scope take place when a company gets to decrease its operational costs as the firm broadens its market and widen its distribution of its various products. Aside from the aforementioned, the former refers to the efficiencies linked to the changes in the supply aspect while the latter, to the efficiencies linked to the changes in the demand aspect.
Both economies of scale and scope may be associated to the present trends of industry convergence in that a globalizing company, in order to lessen its input costs while generating more units of an item or a service, cooperatively allows for an ironical merging with a rival firm, which possesses information and technologies needed by the company. This case of economies of scale taking place between paradoxically collaborating business competitors may be exemplified by the technology giants IBM, Apple and Motorola, which joined multiple resources to come up with the “new and powerful microprocessor chip ‘Power PC,’ in the process minimizing the costliness of the production that would have happened if each went on its way amid incomplete resources.
Meanwhile, in the midst of the incestuous union of similarly-pitched businesses, a company melds with another in order to amplify its number of promoted products and enlarge its scope of utilized media and of market reach. This case of economies of scope may be best exemplified by the formidable corporation General Electric. Its financial service subsidiary, GE Capital, has leasing of planes as one of its businesses, serving such geographically diverse airline carriers as USAir, Eastern Airlines, and a Chinese flagbearer. GE profited much albeit “[benefiting] all concerned” from such airline alliance because as the “[fulfillment of] all [the airlines’] needs” imply, GE might have highly likely provided its coalition partners with such products and services as appliances and power generation. In the process, the airlines also serve as GE’s mobile advertisers as they fly across the globe with GE products and services being directly or indirectly promoted in their destinations.
On the homefront, the convergence of the Manila Standard and Today newspapers in what is now acknowledged as the fourth largest broadsheet of the combined name “was the first newspaper merger in the Philippines.” Economies of scale for both dailies took place in the form of less production cost in the event of publishing expansion and economies of scope occurred in the form of greater subscriber reach than the previous market of either (while still independent) and in the form of Today’s subscribers being accessed not only of the Manila Standard-publishing Kagitingan Printing Press, Inc. but also of its sister company, the Kamahalan Publishing Corporation.