Labour and capital intensive production

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

BENEFITS:

• 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.

DRAWBACKS:

• 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.

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

BENEFITS:

DRAWBACKS:

- 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.

- 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.