The start of the twentieth century was the movement of the world towards agricultural economy. Much of the focus, at that time, was to produce agricultural goods. Mass production was the key term; whereby, masses of agricultural products were produced to cater to human demand. Towards the mid of the twentieth century, the trend changed towards industrial economy. This gave birth to concepts such as assembly line product and batch order processing. Henry Force is generally considered as the father of such concepts.
His phenomenons were to have all processes lined up as an assembly line or have combine processes in the form of batches, and in either case, produce the same products in bulk quantity. This concept was of Standardized mass production, whereby, same product was produced using the repetitive processes, mainly controlled by machinery. This bulk quantity production led to other factors such as economies of scales i. e. the net cost reduced as the fixed costs are spread over a larger volume of output. There was a constraint, however, in this whole working. The output could not be extended infinitely.
It was limited to the demand made by the regional people. For example, Ford cars made in the US were catering to the US markets only. More specifically, geographical boundaries were the constraints to survive and cater the demand within. One of the common concepts that then came in the markets of goods and services was of ‘dumping-the-excess’. This was the technique used by manufacturers who previously had leftover capacity (un-utilized capacity) led by demand constraints. It was analyzed that utilizing the un-used capacity can lead to further decline in unit cost.
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But the question arose was what to do with that excess output? ‘Dumping-the-excess’ concept then came into the minds i. e. to export the leftover output across the region. This led to rise of profits. Government Policies and Restrictions This became an issue of major concern for the local manufacturers. For example, if a manufacturer of garments in China has high un-utilized capacity and utilizing the same can lead him into higher economies of scales (drastic cut down in unit cost); the manufacturer would then be able to sell the export-garments at a heavily lower price in the international market.
If, for instance, the textile sector of any European country isn’t efficient enough, it can create their demand to decline and the economy to suffer. The global think-tanks then came with the idea of restricting the level of exports of a country. Of course no one can limit the exports of a country, so the aim was achieved by applying the import restrictions and penalizing any excess imports. For instance, Turkey cannot import more than 10 million units of garments annually from China. Any quantity in excess of 10 million units was to be penalized in the form of anti-dumping duties.
These policies came as a protection to the developing economies and gave them time to achieve a standard growth. However, it had a draw back. An economy that is dependent on the exports of a single commodity (as the country is master of the art of its production) suffered due to the trade restrictions. These are generally referred to as cross country trade barriers. Such policies and regulations truly hamper the spirit of competition and charge the customer surplus (premium) so that the industry can break even. This again led to the previous situation, whereby; there were barriers to reach the foreign customer.
During the later part of the twentieth century, inventions such telecommunication systems had enhanced, used and produced commercially, and were increasing customer awareness. This particularly stands valid for the telephone and the internet. This led to the manufacturers increasing their reach through telecom mediums. Initially, they created awareness among the customers regarding what exists in the other regions, the options and the variety. Alongside, the costs were conveyed. This made the customer re-think their buying decisions that if they are paying extra, why not pay it for value added service?
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