Technical and Organizational Change and Economies of Scale and Scope in Developing Countries

This article examines the impact of flexible automation (FA) and associated organizational techniques on scale and scope economies and optimal scale. It is based on an in-depth survey of 62 engineering firms in Brazil, India, Mexico, Thailand, Turkey and Venezuela. The paper finds that the replacement of old, mainly conventional, machine tools and transfer lines by new computer-numerically-controlled machine tools and related FA has resulted in lower economical batch sizes and the manufacturing of growing variety, making it possible to reap economies of scope. Scale and scope economies at product level have, however, reinforced scale economies at plant level, resulting in higher levels of optimal output. The main factors accounting for such impact are the reduction in the number of operations required, the improved efficiency and accuracy of the new technologies and the much higher capital fixed costs vis-a ¤ -vis the technologies that were replaced. Higher plant scales could limit the potential for industrialization in developing countries.