Write about the differences between the large firm and small firm variants of industrial restructuring. Also, about the conditions that necessitated them.
Capitalism has been founded on the idea of large firms. Till 1970s, maximization of profits through large firms was a natural model of economic organization under capitalism. The Fordist model of industrialization was based on mass production of homogeneous goods using assembly line production technology, standardized work routines de-skilling and homogenization of labour force. Such an organization secured increase in productivity through economies of scale. However, there were social, economic and technical limits of Fordism. Technically, there is a limit to raising productivity through …show more content…
It offered a new paradigm to replace mass production. It proposes reorganization mainly along three lines. Firstly, the reorganization of manufacturing techniques that involved the usage of Just-in-time (JIT) and Total Quality Management (TQM) techniques in production. JIT calls for the elimination of waste in production and producing only what is required and when it is required. TQM argues for good quality goods to be produced. And, also it calls for the identification of all sources of poor quality and rectifying them. Secondly, changes in management and labour relations. Decentralization, specialization, shift in occupational structure, pay, evaluation etc. are also important. Thirdly, transformation of design and changing relations with suppliers in order to extend JIT and TQM along the supply chain. Operationalization of such policies that are designed to involve, motivate and control workers much differently than Fordism and mass production increased efficiency of output and profitability (Humphrey, …show more content…
Why a shift away from the conventional large firm based industrial organization? The third Italy model and clustering in other regions of Europe highlighted the competitive potential and success of small and medium enterprises (SMEs). Influenced by the success of this model small and medium enterprises have become a target of policies in developing countries. A strong support for SMEs in developing countries is based on the assumption that a strong SME sector helps in sustaining a broad private sector. Moreover, it is expected that the welfare impact of these small firms will create employment opportunities for the poor and the disadvantaged. Such policies are also most effective because their customer oriented outlook of programs helps in improving their competitiveness by learning from what customers actually need. Also, cooperation and mutual learning between firms, just like in the case of third Italy, facilitates maximization of the potential and improves efficiency. Collective approach of the firms also reduces the transaction costs substantially. The resulting cumulative capacity that makes such firms less dependent on outside help is another reason why such an industrial organization is effective. Therefore, the triple C approaches i.e. customer orientation, collective approach and cumulative capacity as Humphrey and Schmitz (1996) talk about makes the SMEs more effective.
Capitalism has been founded on the idea of large firms. Till 1970s, maximization of profits through large firms was a natural model of economic organization under capitalism. The Fordist model of industrialization was based on mass production of homogeneous goods using assembly line production technology, standardized work routines de-skilling and homogenization of labour force. Such an organization secured increase in productivity through economies of scale. However, there were social, economic and technical limits of Fordism. Technically, there is a limit to raising productivity through …show more content…
It offered a new paradigm to replace mass production. It proposes reorganization mainly along three lines. Firstly, the reorganization of manufacturing techniques that involved the usage of Just-in-time (JIT) and Total Quality Management (TQM) techniques in production. JIT calls for the elimination of waste in production and producing only what is required and when it is required. TQM argues for good quality goods to be produced. And, also it calls for the identification of all sources of poor quality and rectifying them. Secondly, changes in management and labour relations. Decentralization, specialization, shift in occupational structure, pay, evaluation etc. are also important. Thirdly, transformation of design and changing relations with suppliers in order to extend JIT and TQM along the supply chain. Operationalization of such policies that are designed to involve, motivate and control workers much differently than Fordism and mass production increased efficiency of output and profitability (Humphrey, …show more content…
Why a shift away from the conventional large firm based industrial organization? The third Italy model and clustering in other regions of Europe highlighted the competitive potential and success of small and medium enterprises (SMEs). Influenced by the success of this model small and medium enterprises have become a target of policies in developing countries. A strong support for SMEs in developing countries is based on the assumption that a strong SME sector helps in sustaining a broad private sector. Moreover, it is expected that the welfare impact of these small firms will create employment opportunities for the poor and the disadvantaged. Such policies are also most effective because their customer oriented outlook of programs helps in improving their competitiveness by learning from what customers actually need. Also, cooperation and mutual learning between firms, just like in the case of third Italy, facilitates maximization of the potential and improves efficiency. Collective approach of the firms also reduces the transaction costs substantially. The resulting cumulative capacity that makes such firms less dependent on outside help is another reason why such an industrial organization is effective. Therefore, the triple C approaches i.e. customer orientation, collective approach and cumulative capacity as Humphrey and Schmitz (1996) talk about makes the SMEs more effective.