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Thread: through scale


    • Join Date: Jul 2005
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    #1

    through scale

    Hi,

    could you please tell me what "through scale" means in the following text:

    This transaction makes strategic sense, because we will capture operating efficiencies through scale.

    Thank you very much.

    Hanka


    • Join Date: Oct 2006
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    #2

    Re: through scale

    Quote Originally Posted by Hanka View Post
    Hi,

    could you please tell me what "through scale" means in the following text:

    This transaction makes strategic sense, because we will capture operating efficiencies through scale.

    Thank you very much.

    Hanka
    "through [the] scale [of the operation] {size of}

    A large company can have greater efficiency in its operations than a small company.

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    #3

    Re: through scale

    Quote Originally Posted by Hanka View Post
    Hi,

    could you please tell me what "through scale" means in the following text:

    This transaction makes strategic sense, because we will capture operating efficiencies through scale.

    Thank you very much.

    Hanka
    No, I am afraid it has nothing to do with the size of the company. Economies of scale or scale effect is reduction in the average cost of production (the unit cost) when output is increased. This enables a producer to offer her/his products at more competitive prices and capture a large share of the market. There are internal and external economies of scale.


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    #4

    Re: through scale

    Yes, Dr Jamshid is right - it has nothing to do with the size of the company.

    The 'scale' of the operation is the important bit - by 'scale' we mean how big are the numbers....eg. do they go up in intervals of 10 or perhaps they go up in intervals of 1000 (like the scale of a map).

    Efficiency is defined as the ratio of OUTPUT relative to INPUT. One person making sausages by hand probably can't make more than a few hundred in an hour. If that same person bought a new automatic sausage-making machine, they could make many thousands per hour for the same amount of effort. Therefore the operating efficiency goes up 'because of the scale' of the operation. (in your example, 'through' means 'because of the').

    The same amount of INPUT generates a much larger OUTPUT - therefore the efficiency goes up because Efficiency=Output/Input

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