Unit 9

Question 1

What are the ways that businesses can increase efficiency by gaining more experience? (With an example)

Answer 1

• Labour efficiency - workers make less mistakes therefore less waste (less materials used)
• Labour specialisation - workers become specialised in certain tasks and therefore produce at a faster rate.
• Input mix - over time inputs such as raw materials may be optimised to reduce the cost of production.
• Ford cut Model T’s costs by 3/4 by integrating vertically, dividing labour and eliminating model changes.

Question 2

What’s the benefit of the experience curve?

Answer 2

Increasing efficiency can reduce unit costs, therefore the business can get a cost advantage. This could mean you can decrease prices which will increase demand and therefore market share. Increasing market share can also lead to becoming a monopoly.

Question 3

What is the experience curve?

Answer 3

The idea is that as a business increases its experience in producing a product, it becomes better at it, increasing efficiency.

Question 4

What is offshoring?

Answer 4

Business activities or processes moved abroad. E.g manufacturing in China or IT services in Poland.

Question 5

Why would a business choose to offshore?

Answer 5

To reduce costs
- Production costs
- Raw material costs: location
- Labour costs: lower wages
- Labour skills - better quality
Increase revenue
- Gloser to a growing market
- Overcome protectionism

Question 6

What are the disadvantages/problems with offshoring?

Answer 6

• Initial transition costs
• CSR risks
• Exchange rate risks
• Logistics pressures (lead times?)

Question 7

What is reshoring?

Answer 7

Bringing business activities back tot he home country (e.g UK).

Question 8

Why would a business re-shore?

Answer 8

• To avoid offshoring risks:
  CSR, exchange rate, transition costs, logistics risks.