Labour and capital intensive production

  • Created by: noe
  • Created on: 20-03-20 22:03

Labour-intensive production

- Production methods that make more use of labour relative to machinery.


  • More flexible than capital.
  • Cheaper for small-scale production.
  • Cheaper for large-scale production in developing countries like China.
  • People are creative and can solve problems and make improvements.


  • People are more difficult to manage than machines - they have feelings and react.
  • People can be unreliable -  they may be sick or leave.
  • People cannot work without breaks and holidays.
  • People need to be motivated to improve performance.
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Capital-intensive production

- Production methods that make more use of machinery relative to labour .


  • More cost effective if large quantities produced.
  • Machinery often more precise and reliable.
  • Machinery can operate 24/7.
  • Machinery is easier to manage than people.


  • Huge set-up costs.
  • Huge delays and costs if machinery breaks down.
  • Can be inflexible as most machinery is highly specialised.
  • Often poses a threat to the workforce and can reduce motivation.
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Factors affecting production

- The nature of the product: everday products with high demand are mass produced in huge plants using large quantities of machinery but services tend to be labour intensive.

- The relative price of the two factors: if labour costs are rising it may be worth it for a company to employ more capital but in countries where labour is cheap, labour-intensive production methods are preffered.

- The size of the firm: if a firm grows and the scale of production increases, it tends to employ more capital but smaller businesses will use more labour.

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Short product lead-in times

- Businesses can gain a competitive advantage if the can reduce the amount of time it takes to develop and lauch new products as, if they can be the first into the market (first-movers), they can exploit some advantages:

  • They can make a lasting impression on customers, which can result in improved brand recognition and lasting brand loyalty.
  • They may charge premium prices.
  • They have more time to develop their production processed to help perfect their products or services.
  • They may be able to control resources in the industry, for example, win exclusive contracts with key suppliers or important human resources.
  • They may enjoy a strategic advantage if it is expensive for customers to switch products at a later date.

However, there are some disadvantages of being first-mover:

  • It involves high costs of product development that copy businesses are likely to avoid.
  • Followers in the market may learn from mistakes made by first-movers and make modifications to products so that they are superior to those of first-movers.
  • It is possible first-movers, in fear of missing market opportunities, launch products before they are properly ready.
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