Advantages of Small Scale Production

Developing personal relationships: Small businesses are well placed to build personal
relationships with customers, employees, and suppliers. With a small business you know who
you are dealing with; you can 'put a face' to the person you are in contact with. Person-toperson interaction is as important as ever in building strong relationships.
Responding flexibly to problems and challenges : In a small business there is little hierarchy
or chain of command. Large businesses may have set ways of operating and establish
procedures that are hard to change. Small businesses are often far more flexible. It can also
reach a quick decision on whether or not it can do what is required.
Inventiveness and innovation: Small businesses are well positioned to introduce and develop
new ideas. This is due to their owners not having to report or seek approval from anyone else.
For example, when Anita Roddick set up The Body Shop, she developed a range of
environmentally friendly cosmetics in unsophisticated packaging. This would have been
frowned on in a conventional cosmetics company.
Low overheads: Due to the small scale of operation, small businesses have lower overhead
costs. They operate in small premises with low heating and lighting costs, and limited rent
and rates to pay. Low costs result in lower prices for consumers.
Catering for limited or niche markets: Large firms with high overheads must produce high
levels of output to spread costs. By contrast, small firms are able to make a profit on much
lower sales figures. They can therefore sell into much smaller markets: e.g. a local window
cleaner serving a few hundred houses, a specialist jewellery maker with personal clients.
Nature of Demand: The small producer has an advantage over the large producer, when the
demand is either small or is constantly changing. He has thus a sphere of his own where he
has an advantage over the large scale producer.
More Employment: In the face of large scale unemployment existing in the country, the
development of cottage and small scale industries is of great help to create more
employment opportunities. Small scale production is more labor-intensive i.e., there is more
use of labor than machinery. Thus, many unemployed persons are employed in the newly
developed small scale industries.
Need of small Capital: The small scale production can be started with small capital. Where
there is shortage of capital, the small scale industries are of great advantage for the
development of industries.
Direct Relation between the Workers and the Employers: In small scale production less
workers are employed. Therefore, a close relationship exists between the employer and the
workers. Because of this close relationship, the employer can look after the well-being of his
employees and employees, too, consider their work as their own and the work goes on
smoothly without any disputes between the two parties.
Direct Relation between the Customers and the Producers: The small scale producers
generally cater to the local demand. Hence, they remain in touch with their customers. A
small producer personally knows his customers. Therefore, he can produce goods according to
the taste and fashion of each individual customer.
Easy Management: The management of small business is easy and economical. Simple
accounts and a few persons can manage the job well.
Freedom of Work: There is complete freedom of work in a small business organization.
Workers are more or less self-sufficient. They are not dependent on the capitalists and carry
on their jobs freely.

External Economies: The small scale production secures all kinds of external economies,
which are available to large units also. These economies are: better transport, electricity, and
communication facilities; banking and insurance services; technical workers, etc.
No Evils of Large Scale Production: The small scale production cannot fall victim to the evils
of the large scale production i.e., evils of the factory system, overcrowding, etc.

Disadvantages of Small Scale Production

High Cost of Production: The cost of production per unit increases because there is a high
cost of labor, a very little scope for division of labor and lesser use of machinery.
Wastage of By-products: In the small scale production, it is not possible to make economic
use of the by-products, as in the large scale production. By-products of the small producers
generally go waste.
Less Use of Machines: In the small scale production, there is less scope for the use of
machines. As a result, these firms cannot take advantages of the use of the machinery.
Lack of Division of Labor: In the small scale industries, the size of production is small, and
there is lack of division of labor and less profits to the entrepreneurs.
Difficulty in Getting Loans: It cannot enjoy the financial economies. Funds are either not
available and if available, they have to pay higher rate of interest.
Difficult to Face Economic Crisis: Because of the limited resources and financial weakness,
the small scale producers cannot face economic crisis. The producers do not have the
capacity to bear losses for long. In fact, under a small economic crisis, many small factories
are closed down.
Costly Raw Materials: In the small scale production, raw materials are purchased in small
quantities which are available to the small producer at higher prices.
Lack of Standardized Goods: The quality of goods is not standardized or up to the mark in
the small scale production. It is difficult to sell goods because of their low standard and
inferior quality.
Old Techniques: In the small scale industries, the production is undertaken with the help of
old techniques or old and obsolete machines. It is not within their capacity to bear the risk of
installing new machinery.
Lack of Research: The small scale industries have limited means at their disposal. They
cannot spend much on research in the field of science and technology. In this way, the small
scale industries are a hurdle in the way of technical research and, industrial development.
Difficult to Face Competition with Large Scale Producers: If some large scale producers
enter the market, the small producers find it difficult to compete with them. The small
producers perish at the hands of the large scale producers.

Advantages of Large Scale Production

Internal Economies: Internal economies arise within the firm because of the expansion of the
size of a particular firm. They are called the economies of scale.
External Economies: External economies arise with the expansion of the industry. These are
generally the result of large scale production and are associated with the advantages of
localization.
Division of Labor: The large scale production is always associated with more and more
division of labor. With the division of labor per worker output increases. Hence, per unit labor
cost is reduced in large scale production.
Use of machines: The large scale production always makes use of machines. So, all the
advantages of the use of machinery are available.
More Production: The large scale industries can produce more goods. For instance, a big
sugar factory can use molasses to make spirits and thus can reduce the cost of production of
sugar.
Economies of Organization: With an increase in the size of the firm, the cost of management
is reduced.
Low Cost of Production: The large scale production gives many types of economies. Suppose,
there are two different factories, each producing 500 units of a commodity. For these two
factories, there must be two managers. But if the scale of production is enlarged and in one
factory we start producing 1000 units of the same commodity, the work can be supervised by
one manager. In this way, in the large scale production, the salary of one manager is saved.
So, the cost of production is reduced.
Cheap and Easy Loans: A large business can secure credit facilities at cheaper rates, because
these firms enjoy credit and reputation in the market due to their fixed assets. Banks and
other financial institutions willingly advance loans to these enterprises at a very low rate of
interest.
Ancillary Industries: With the development of large scale production, there arise many small
industries which use its by-products or supply inputs to it. Suppose, when the production of
steel is increased, many other auxiliary industries develop. The development of auxiliary
industries contributes to the industrialization of the area and the industry itself.
Standard Goods: The production of standardized goods is possible on account of the largescale production. Only a big motor company can produce standardized motor parts. Besides,
it is possible to sell and transport these goods to distant places only by big business houses.
Advertisement and Salesmanship: A big concern can afford to spend large amounts of money
on advertisement and salesmanship. Ultimately, they do bear fruit. The amount of money
spent on advertisement per unit comes to a low figure when production is undertaken on a
very large scale. The salesmen can make a careful study of the individual markets and thus
acquire a hold on new markets or strengthen it on the old ones. Thus, a large scale producer
has a greater competitive strength.
Research: The large scale production is conducive for the development of technology also.
With larger amount of capital and financial resources, the large scale firms can afford to
spend more on research and experiments which ultimately lead to the discovery of new
machines and cheaper techniques of production.
Economy of Buying and Selling: A large concern usually buys things in large quantities and
therefore, at low rates. It also sells things in large quantities and can secure better terms.
Economies of Indivisibility: Many factors of production are not perfectly divisible. For
instance, assume that one machine can produce 100 units of a commodity, but we are

producing only 50 units by that machine. The machine is indivisible. If the scale of production
is increased and we start producing 100 units, per unit cost will be reduced. This is the
economy of the indivisible machines.

Disadvantages of Large Scale Production

Evils of Factory System: The large scale production is accompanied by all the evils of the
factory system like over-crowding, density, pollution, bad morals, etc. Dirty habits of drinking
and gambling spread very easily.
Danger of Over-Production: The large scale organization results in over production at times,
so demand cannot be properly estimated. At last, prices fall and depression sets in.
Less Supervision: A large scale producer cannot pay full attention to every detail in various
departments. Costs often rise on account of the dishonesty of workers. Thus, due to
inefficient and inadequate supervision, the cost of production goes up.
Monopoly: The large scale production results in the localization of industries. As a result, the
bigger fish swallows the smaller ones, and cut-throat competition and monopolies result.
Class Struggle: The large scale production gives rise to class struggle, the struggle between
the laborers and the capitalists. Their interests cannot go together, as they are very different
from each other. As a result, there is a struggle between the two groups.
Dependence on Foreign Markets: A large producer has generally to depend on the foreign
markets. The foreign markets may be cut off by wars, etc. This makes the business risky.
Possibility of War: The large scale production increases the possibilities of wars. Big
producers make attempts to sell their goods in the foreign markets and try to capture them
by fair and foul means, thereby exposing the world to wars and struggles.
Lack of Adaptability: As huge capital is invested in the large scale production, it is very
difficult to bring about a change in the scale of production according to the circumstances.
Individual Tastes Ignored: The individual tastes and interests stand completely ignored in
large scale production. Goods of uniform quality are turned out irrespective of the
requirements of the individual customers. Individual tastes are not, therefore, satisfied. This
results in the loss of customers to other competitors.
Unequal Distribution of Wealth: All wealth and incomes of the country get concentrated in
the pockets of big producers due to large scale production. There is unequal distribution of
wealth and resources on account of the large scale production. The rich become richer and
the poor become poorer.