CIMA BA1 Syllabus B. Microeconomic And Organisational Context Of Business - Alternative strategies for firms - Notes ^{4 / 9}

Alternative strategies for firms

Although economies of scale encourage firms to get bigger, small firms can still survive and be competitive. 

Strategies such as outsourcing of high-cost activities, or off shoring, often enable smaller firms to survive.

1. Outsourcing

   - refers to transferring an activity previously conducted by the firm itself to an outside contractor.

   eg a small internet-based retail company can use an external logistics company to deliver goods to its customers, rather than running its own delivery service (employing its own delivery staff, purchasing delivery vehicles etc).

2. Off shoring

   The costs of operation vary widely from country to country, due to factors such as:

   (a) Lower general pay rates

   (b) Better skills available

   (c) Better support services such as transportation, information systems or education and training

   (d) More favourable regulatory environment such as lower taxation, less costs of complying with government regulations.

   A firm may decide to locate some its in-house operations offshore or may outsource some of its activities to off-shore locations in order to gain cost efficiencies needed to compete in its market.

3. Network organisations

   Outsourcing means a firm will rely on several other firms to supply a product. 

   So, the supply of a good involves several firms in partnership. 

   If a firm has outsourced most of its activities, it is called a network organisation.

4. Shared service centre

   eg using a central Finance team, rather than the different divisions in a company each having their own finance team.

5. Flexible staffing

   This involves the use of a variety of flexible working arrangements

   For example the use of temporary staff, or full time staff on zero-hours contracts.