Pics - :: Allocation Efficiency Of A Small Scale Industry
Allocation Efficiency in Small
Scale Industries:
Inefficiency and the lack of financial
support beside the whimsical attitude of the one’s who run this small scale
industry, as well as the negligence of the Government, be the State or the
Government at the Centre , has been responsible for the untimely demise of about 90% of the
Small Scale Industry here at India .
The Average Cost, the Marginal Cost and the Marginal Revenue it is which determines the super-normal profit of a Small Scale Industry and DEAD WEIGHT WELFARE LOST actually determines the death of a Small Scale Industry as depicted in this diagram and it is here that the Small Scale Industry sees it's gory end.
What are the factors that actually ought to be taken while determining the efficiency of a small scale industry is ascribed here .
In many cases, the small scale industry and it’s
owner either did not take the appropriate step to upscale it’s system of
running and manning this type of an industry, or it failed to come upto the
terms that would be required to run this kind of an industry. That made the
difference.
It is
argued that small enterprises use the factors of production more efficiently,
since they face factor prices that are closer to the existing scarcities, i.e.,
they pay lower ‘wages and incur higher capital costs.
This
should then be reflected, on the one hand, in lower capital-output ratio, since
a higher interest rate corresponds to a higher capital productivity, and, on
the other hand, in lower capital-labour ratios, since the wage-rental ratio is
lower. Other Arguments A number of other factors, both economic and
sociological, lend strength to small industries.
Among the economic factors, the more important are as follows:
Economies of the scale in the small
scale industry sector , at times was made the only and the best possible reason
for the industry owner to wash their hands off the absolute requirement that was felt necessary to run the small
scale industry.
To save their skin, and not to spend on
the requirement that would be required to economise the scale of production
through the required technology , many a times it was felt that the small scale
industry may be run the manner as it is run, but the blame for the failure of the
administration was loaded in the shoulders of the others to make them the
scapegoat of the same. Some of the notable feature where the small scale industry owners felt to put the
pressure on the other’s were as follow-:
(i) The new feature of Internet and
Communication Technologies (ICT) is that they enable a much smaller scale of
efficient production, compared to the earlier factor technologies.
(ii)
For minimisation of risk, a new line is opened on a small scale.
(iii)
Where the material to be worked upon is not uniform, where the processes are
not amenable to quick repetitions and where the products are not standardised,
large-scale methods are not suitable or economical, and here small industry
thrives on its own strength.
(iv)
Market imperfections, due either to consumer resistance or to transport cost,
also limit the size of the market and the scope of large-scale production.
(v) The
small sector has certain inherent advantages in terms of flexibility of
decision-making. This makes small firms more innovative and open to new ideas.
(vi)
This sector is better placed to cater to specific and changing customer needs.
It may be noted that one of the finest sports cars in the world is made on
small scale.
(vii)
Small industry may undercharge the consumer on the assumption that it is really
a low-cost industry, by not providing for, unwillingly or otherwise, adequate
depreciation or remuneration for the factors of production owned or hired from
friends and relatives. And the prices so set at these costs may be competitive
with that at large industry.
(viii)
Not to attract the provisions of the anti-trust legislation or to war public
sympathy, large industry fixes a price higher than normally warranted, and this
price umbrella protects small industry.
(ix)
Introduction of the new technology has increased the sophistication of products
and augmented their consumer orientation. This trait of the new technology has
gone counter to mass scale production of a product with a given specification.
Consumer orientation and preference for change as well as individualistic
consumer tastes favour flexible manufacturing systems, introduction of
computer-aided designs (CAD) and computer-aided manufacturing (CAM). All these
favour small firms.
(x)
Small sector plays an important part in the innovation process. For example, in
recent years, about 10 percent of all patents registered in India have come
from the small scale sector.
(xi)
Small sector has built up brands that are small, reliable, trusted and local.
These tiny brands have remained small in their volume turnover but are truly
big in their equity in the markets they operate in.
Above
all, in view of the ongoing SAP, the social and economic pressures that the
transformation of an agrarian economy often generates would be eased if large
numbers of those currently involved in agriculture find a role in rural
small-scale industries. This interaction has the potential to smoothen the
process of liberalisation of the rural economy.
Pic - :: The " DEAD WEIGHT " Loss in a Small Scale Industry - ::
The consumer surplus and the production surplus goes in a very long manner to explain the DEAD WEIGHT LOSS in a small scale industry . The price ceeiling, ie , the price at which the total production ought to be calculated and the equilibrium at which the supply and the demand factor in which the demand curve plays an important role actually determines the stability and the standing of the future of the Small Scale Industry and it is here that the owner of the Small Scale Industry fails to read the curve properly and he fails in his attempt to save his industry.
As described earlier, the quantity of the units of the goods required by the market and the equilisation of the same with the ceiling or the cap on it's price goes in a long manner to stabilise the small scale industry , and it is here at the crucial point that the small scale industry either collapses or it gains it's rise incase if it equalizes itself to the reading that is reflected by the kind of a graph that I have displayed here .However the sociological factor ought to be as well taken care of and a study ought to be made as well in this manner , to determine whether the small scale industry ought to be taken to rehaul it according to the situation that arises to keep it afloat or whether it is moving to the zone of red and death.
There are some sociological factors as well, which goes with the survival of the small scale industry and those when mixed with the factors that I have stated here as above, goes in a long manner to save or to destroy the small scale industry.
Among the sociological factors, the more important are as follows:
(xii)
There exists in man a desire to gamble, so that he takes risks irrespective of
consequences, and small industry provides an outlet for this desire.
(xiii)
Man often enjoys the independence or status of an entrepreneur for its own
sake, and this is possible for more men in small industry than in large
industry.
(xiv)
Man starts his own business to provide employment to members of his family who
may be unemployable or less gainfully employable elsewhere.
Well , that is it and That sums it all.
Regards and Thanks
Pics
Shyamal Bhattacharjee
Mr Shyamal Bhattacharjee, the author was born at West Chirimiri Colliery at District Surguja, Chattisgarh on July 6th 1959 He received his early education at Carmel Convent School Bishrampur and later at Christ Church Boys' Higher Secondary School at Jabalpur. He later joined Hislop College at Nagpur and completed his graduation in Science and he also added a degree in B A thereafter. He joined the HITAVADA, a leading dailies of Central India at Nagpur as a Sub-Editor ( Sports ) but gave up to complete his MBA in 1984 He thereafter added a Diploma In Export Management. He has authored THREE books namely Notable Quotes and Noble Thought published by Pustak Mahal in 2001 Indian Cricket : Faces That Changed It published by Manas Publications in 2009 and Essential Of Office Management published by NBCA, Kolkatta in 2012. He has a experience of about 35 years in Marketing .
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