Tradeoffs in the Organization of Production: Multiunit Firms, Geographic Dispersion and Organizational Learning

Firms face a choice in the organization of production. By concentrating production at one site, they can enjoy economies of scale. Or, by dispersing production across multiple facilities, firms can benefit from product-specific efficiencies and enhanced organizational learning. When choosing to organize in multiple units, firms must also decide where to locate these units. Concentrating production geographically can enhance economies of scale and facilitate organizational learning. On the other hand, dispersing facilities might allow the firm to lower transportation costs, reduce risks, and forbear competition. To examine these tradeoffs, we compare exit rates of single-unit organizations to multiunit organizations and their constituent plants in the U.S. footwear industry between 1940 and 1989. Our results suggest that, multiunit organizations benefit primarily from enhanced organizational learning, competitive forbearance and the diversification of risk. Nevertheless, these benefits appear to come at the expense of organizational adaptability. 1 2 3 4 5 6 7 8 9 1011 11 12 13 14 15 16 17 18 19 2011 21 22 23 24 25 26 27 28 29 3011 31 32 33 34 35 36 37 38 39 40 Multiunit Organization and Multimarket Strategy, Volume 18, pages 75–105 Copyright © 2001 by Elsevier Science Ltd. All rights of reproduction in any form reserved. ISBN: 0-7623-0721-8