Factors Affecting Ancillarisation :
- Size of Operation –
The size of the operations of several industry nets has increased enormously, with the result ; that they are compelled (forced) to subcontract some of the items of production to ancillaries.
- Convenient for large scale manufacturer –
It is more convenient for large scale manufacturers to get the ancillary units to produce certain items for them. With the growing complexity of the management, the large scale manufacturer can now concentrate on the problems of organization, finance, marketing etc. rather than fritter away their energies on finding raw materials & framing production plans for the manufacture of several minor items which go into the final assembly.
- Reducing Cost of transportation –
Large scale manufacturers can economise on transport costs, storage space etc by subcontracting rather than by producing the same components themselves.
- Price Stability –
By subcontracting, a large scale manufacturer is able to insulate himself against fluctuations in the prices of raw materials over a period of time by entering into contracts for the supply of these items.
- Others –
The rise in the cost of capital has also been another reason for the growth of ancillaries.
If the demand for component is small, the scale of economies & saving would not be realized. In such a case, it would be advantageous to buy such inputs from specialized sub-contractor firms.