economies of scope

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Economies of scope

Scope economies exist whenever the same investment can support multiple profitable activities less expensively in combination than separately.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

economies of scope

the cost savings which arise by carrying out a number of different activities within the same firm through sharing common inputs or jointly promoting or distributing products. For example, a building society could use its existing branches and staff not only to sell mortgages but also to offer customers other financial services such as insurance, pensions etc. Likewise, Nestlé has used the strategy of UMBRELLA BRANDING to extend its range of instant coffee products all under the ‘Nescafé’ BRAND NAME thereby reducing promotional costs. See DIVERSIFICATION.
Collins Dictionary of Business, 3rd ed. © 2002, 2005 C Pass, B Lowes, A Pendleton, L Chadwick, D O’Reilly and M Afferson

economies of scope

the LONG-RUN reduction in AVERAGE (or unit) COSTS that occurs as the scope of the firm's activities increases. A firm can achieve economies of scope by sharing common inputs over a range of its activities or by jointly promoting or distributing its products. For example, a building society could use its existing branches and staff not only to sell mortgages but also to offer customers other financial services such as banking and insurance.

Economies of scope are often an important motive for firms undertaking ‘concentric’ DIVERSIFICATION.

Collins Dictionary of Economics, 4th ed. © C. Pass, B. Lowes, L. Davies 2005
References in periodicals archive ?
"The intensification of the trade relations of Republic of Macedonia with the EU and NATO member-states will contribute for the increase of the socalled "economy of scope" with direct influence on the increase of the scope of the domestic production, the export and employment in the country.
Smaller programs have this trouble too, but they also have the implicit firewall that comes with economy of scope. Their larger peers, however, generate multiple independent pockets of risk (technical, process, schedule, integration, etc.) that end up superposing with other risks, creating program-wide instability that is more than just a sum of the individual issues.
These motives may include increased financial strength, economy of scale, economy of scope, increased revenue, synergy, taxation, geographical diversification, expansion or retrenchment, resource reallocation, diversification, cross-selling, and last but not least, empire building.
Under the LTE network, the Ubitus GameCloud can work smoothly with minimum latency by reducing server multimedia and device processing time and increasing the concurrency rate on each serve, and therefore, reduce the operational cost significantly to achieve economy of scope. The scalable architecture allows easy deployment on wired and wireless networks and effortless integration with any billing systems.
Risks-Benefits Risk Benefit Vulnerability Independence Time constraints Time flexibility No economy of scale No pressure to take shortcuts No economy of scope No pressure to refer Time away from family Time with family Lost income Secure job Malpractice insurance Reduced exposure Business risk Business control References
However, in most cases economy of scope also implies that the firm must make a choice.
The second economy of scope driving consolidation will be the insight derived from building a customer profile that encompasses many product categories.
These motives may include: economy of scale, economy of scope, increased revenue, synergy, taxation, geographical diversification, expansion or retrenchment, resource reallocation, diversification, cross-selling, and last but not least, empire building.