Sources of Economies of Scale

Companies can find economies of scale from internal or external sources. Internal sources are within the company's control, while external sources are beyond its control. External sources involve supply chain partners benefiting from economies of scale, leading to cheaper raw materials and efficient transportation. We'll focus on internal sources and study global-level external sources. Internal sources are:

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Bulk purchases

Large businesses enjoy a discounted rate from the suppliers as they buy in bulk quantities. Bulk orders are preferred over small orders by the suppliers and, as a result, discounted rates are offered.

Managerial efficiencies

Businesses can benefit from the expertise of highly skilled managers who can leverage managerial efficiencies. This ensures that efficiencies at scale are maintained, and average costs are minimized by enhancing the management structure.

Technological advances

Technological advancements can significantly impact company costs. Scaling companies can leverage these advances for competitive advantage. They are early adopters, compounding benefits at scale.