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Business strategy, Logistics

Economies of scope

Economies of scope is an economic phenomenon in which the cost per unit of a product or service decreases as the types of products and businesses handled increase.
In other words, the cost per unit is lower if one company conducts multiple businesses and shares management resources rather than manufacturing one product individually.

Unlike economies of scale, economies of scale aim to reduce production costs by expanding production in a single business, while economies of scope are a combination of multiple businesses. With the aim of saving production costs in , and pursuing economies of scope is to share some existing equipment and therefore may require little additional investment.
For companies aiming for diversification due to such merits, interest in economies of scope is required.

There is a perspective of utilization of information in the background of economies of scope. Information has the property of being naturally accumulated during daily activities, and typical examples are experience, know-how, and customer assets .
This information can be reused by accumulating it in a database, etc. For example, by accumulating sales information to customers in a certain business, it is possible to sell different products to the same customer.
Proper use of this information can have economies of scope, and it may be more likely to win by accumulating information on different businesses than by accumulating information on the same business.
How to efficiently utilize this information asset is an important point for achieving economies of scope.

The background to the birth of economies of scope lies in the utilization of unused resources .
The resources required to carry out one business are actually such that they cannot be completely used by that business alone, or they cannot be fully used by one business, and some companies have not yet used them for various reasons. Resources used will be generated.
The unused resources exist in the company for free in a sense, so if they are used, they will be profitable and economies of scope will be created.
There are several patterns in which unused resources are generated from existing businesses, the most obvious being when by-products emerge from the production activities of existing businesses, which are combined products .

Increasing the number of products and businesses we handle will make economies of scope effective, but in that case it is important whether or not the shared resources bring about sharing between products and businesses. Even if we increase the number of products and businesses, we cannot enjoy the benefits of economies of scope unless we can share production equipment, distribution networks, technologies and know-how.



Two effects of economies of scope

Complementary effect

The complement effect is the effect that two businesses and products complement each other to make more complete use of one physical resource.
In a situation where 1 + 1 is made by a combination effect such as addition, further production becomes physically impossible once the idle part of the physical resource is used up. It is typical to use the idle part of the factory to make another product in your spare time.



Synergistic effect

Economies of scope are typical when working in the field of advanced chemicals using the science and technology accumulated by textile manufacturers. The information resources of invisible assets are shared by both fields, and there is no such thing as being unable to use the textile field as much as the technology is used in the chemical field, and they are shared without interfering with each other. Is done. What’s more, the technologies developed in the field of new chemicals have the potential to help advance the sophistication of textiles.
It has the potential to synergistically bring about good effects on each other, and this is a multiplicative synergistic effect, such as 1 + 1 becoming 3 .
The reason why such mathematical formulas are born is that it is a characteristic of information management resources behind the synergistic effect, and even if it is used in one field, it does not decrease, but rather new information may be born from the combination of the two fields. I will.
Complementary effects are easy to understand only for common reasons for visible physical resources, but their effects are limited. The first thing to write about diversification is synergies, which are businesses that can create not only static synergies but also dynamic synergies . It can be said that the combination of is the most ideal.
Dynamic synergy is the accumulation of technologies built by existing businesses through the synergistic effect of creating one information resource by one business and letting another business use it at a future point in time. Is a typical example of the fact that can be the basis for the development of new businesses and can develop competitive strategies in an advantageous manner.
In the future, both businesses will be able to take advantage of their technological accumulation. At some point in the future, there are two synergistic effects: a static synergistic effect and a synergistic effect that leads from the present to the future.

It has also been confirmed that dynamic synergies are the most important part, and it is this dynamic synergies that the diversification strategy should aim for.


By-product production

Reusing the by-products produced by a business for other businesses is also an example of economies of scope.

The most common is that the information management resources accumulated in existing businesses can be used in other fields as well. For example, the technology created by an existing business is a typical example. The technology can be used in other business fields because it can be used simultaneously as a characteristic of information management resources. The technology can be used free of charge for the company, so the technology is independent. It is a cost advantage compared to companies that have to accumulate in.
Various resources, such as brands, customer credit, and distribution networks, have potential in other areas. Moreover, it is not fully used in the existing field, and it will be used to start a new business.

In this way, in addition to unused resources as a by-product of existing businesses, if an existing business has idle resources for some reason, the idle resources will be used to operate leisure facilities and advance into the real estate industry.
Also, taking advantage of the seasonal differences in customer traffic, I make different products or do business for different purposes in my spare time.
Since our computer is a large machine, we cannot use the resources by ourselves, so we rent out some of the functions to the outside. Etc. are the source of economies of scope.



Economies of scope disadvantages

Range uneconomical

There are management costs if you increase the number of products and businesses too much
Too many products and businesses can also increase management costs between businesses.
The more diversified you are, the higher your management costs will be due to the different business characteristics between organizations.
Therefore, it is necessary to judge at the time of building a business model whether or not the resources shared between products and businesses bring about economies of scope. Also, in the case of resources such as production equipment and distribution networks, it is a disadvantage if the profits of the existing business are passed when the existing volume is examined and the possibility of sharing is judged, and if the resources are shared.

UNIQLO once entered the grocery sales business such as vegetables called “SKIP”, but it may have been in demand because UNIQLO’s know-how and resources could not be shared and economies of scope could not be demonstrated. I had to withdraw early.


Economies of scope representative company


Google is a company that develops comprehensive Internet services. By developing business not only on portal sites but also in various fields such as Search engine,Google Map, Gmail, Google Pixel, are saving business costs by standardizing customer databases and point services and introducing payment services.
We also create a sense of security by adding familiar words such as “Google” to the services of other companies that we have acquired.



Other business examples

Synthetic fiber companies are engaged in plastics and chemicals by making use of the science and technology created as a result of technological development efforts in the textile field.
When electronics technology is accumulated in the camera development and production process, the technology can also be used for the development and production of office equipment. In this way, the fixed cost for developing the technology is shared by multiple businesses and products. Fixed costs are reduced.

In addition, Epson, which is developing in inkjet printers, was a watch maker, but the metal precision microfabrication technology accumulated for watch production is used in the production of inkjet heads, and the image quality is overwhelmingly higher than that of other companies’ products. Dynamic synergies about information management resources, such as the successful development of superior printers, helped Epson grow.



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