Capital vs Labour Intensive Organisations

Factors Influencing Fixed Capital Requirements

• Capital-intensive organisations require higher investment in plant and machinery, resulting in higher fixed capital requirements.
• Labour-intensive organisations require less investment in fixed assets, resulting in lower fixed capital requirements.
• Assets that become obsolete quickly, such as computers, require higher fixed capital to purchase replacements.
• Organisations with high growth prospects require higher investment in fixed assets to meet increased demand.
• Diversification of operations, such as a textile company starting a cement manufacturing plant, increases fixed capital requirements.
• Availability of leasing facilities as an alternative to outright purchase can reduce fixed capital requirements, especially in high-risk businesses.
• Collaboration between organisations to share facilities, such as a bank using another's ATM, reduces the level of investment in fixed assets.

Working Capital

• Working capital facilitates smooth day-to-day operations of a business.
• Current assets, such as cash, inventory, and accounts receivable, are usually more liquid but contribute less to profits than fixed assets.
• Examples of current assets, in order of their liquidity, include:
  • Cash
  • Accounts receivable
  • Inventory
  • Others

Shift from Quantity to Quality

• With an increase in product supply, customers started looking for superior quality, performance, and features, leading firms to shift their focus from quantity of production to quality of products.
• Product improvement became the key to profit maximization under the concept of product orientation.

The Selling Concept

• Increased competition among sellers led to a business philosophy that customers would not buy unless they were adequately convinced and motivated.
• Firms started undertaking aggressive selling and promotional efforts to persuade customers to buy their products.
• Promotional techniques like advertising, personal selling, and sales promotion were considered essential for selling products.
• The focus shifted to pushing sales through aggressive selling techniques, overlooking customer satisfaction in the process.

The Marketing Concept

• Marketing orientation implies that customer satisfaction is the key to an organization's success in the market.
• An organization can achieve its objective of maximizing profit by identifying and satisfying the needs of its present and prospective buyers.
• Customer satisfaction becomes the focal point of all decision-making in the organization.
• Decisions on product features, pricing, and availability are made from the customer's point of view.
• An organization produces products with features that meet customer needs, such as a refrigerator with a double door or a separate water cooler provision.

Understand the key differences between capital-intensive and labour-intensive organisations, including their investment requirements in plant, machinery, and manual labour.