Introduction
The status of the leading trend that world globalization has acquired in the world economy today is due primarily to the fact that this trend is present even in those states where other trends of the current world economy are weak and barely noticeable. In particular, backward and underdeveloped countries are almost not involved in such processes as post-industrialization or integration. However, at the same time, they are included in the globalization of world markets and largely focused on foreign markets: services, goods, labor, knowledge, and capital. With the globalization of the world economy, economies of scale are achieved, resulting in lower prices and mitigating changes in economic cycles. Economies of scale reduce wage costs and save money to a large extent.
World Globalization
World globalization is uniting the world into a single system of global properties. Various components of globalization of the world economy have been seriously discussed since the 60-the 70s of the last century (Autio et al., 2021). Globalization of the world economy is expressed in changing the world space, transforming it into a single zone, and opening it for the unimpeded movement of goods, services, information, and capital (Croucher, 2018). In this space, ideas and carriers move easily, contributing to the development of actual institutional formations and setting up systems of interaction between them.
Economies of Scale
Bottom-line economies of scale are reductions in unit costs while increasing production volumes. Economies of scale allow a manufacturer to offer its products at more competitive prices and thus capture a larger market share (De Roest et al., 2018). Internal economies of scale arise when a more productive use of factors of production can be achieved, and increased output pays for higher marketing, financing, and product development costs. When production costs rise at a higher rate with increasing output, negative economies of scale arise. Internal economies of scale may arise due to an enterprise having increased its optimum size and disproportionately increasing and maintaining a cumbersome administrative workforce. External economies of scale and scale losses arise due to the firm’s use of market conditions and technological advances.
Impact of Economies of Scale on Wages and Salaries
Labor is cheap in countries with underdeveloped economies. Therefore, large companies, as part of economies of scale, try to locate their production facilities in such countries. Thus, they save on wages and scale production. A large part of the cost of production is made up of wages or labor reproduction costs. Depending on the production industry, these costs can amount to 30-50 percent of the finished product cost (Winquist et al., 2019). When a good is created, these costs are transferred to the value of the finished product, which is the process of creating new value. In the labor process, the worker creates new value, including the value of the necessary product and the surplus product. The value of the necessary product goes to the reproduction of labor through wages. The cost of production includes only the cost of the necessary product. By saving on labor, the company’s profits are multiplied.
Conclusion
Thus, economies of scale are beneficial, especially in the context of globalization. However, as the scale of the firm increases, a certain negative effect of scale emerges. Its main manifestation is difficulty in managing large-scale production. Its second manifestation is the difficulty of reorienting to the production of a new type of product depending on changes in market conditions. Automated and mechanized workshops are difficult to reconfigure and change equipment.
References
Autio, E., Mudambi, R., & Yoo, Y. (2021). Digitalization and globalization in a turbulent world: Centrifugal and centripetal forces. Global Strategy Journal, 11(1), 3-16. Web.
Croucher, S. (2018). Globalization and belonging: The politics of identity in a changing world. Rowman & Littlefield.
De Roest, K., Ferrari, P., & Knickel, K. (2018). Specialization and economies of scale or diversification and economies of scope? Assessing different agricultural development pathways. Journal of Rural Studies, 59, 222-231. Web.
Winquist, E., Rikkonen, P., Pyysiäinen, J., & Varho, V. (2019). Is biogas an energy or a sustainability product?-Business opportunities in the Finnish biogas branch. Journal of cleaner production, 233, 1344-1354. Web.