The introduction of the assembly line in Henry Ford’s factories is a prime example of increasing returns to scale. This technical innovation – an input investment – greatly accelerated production and increased output, while reducing costs. Assembly line production, having initially been an internal economies of scale effect, evolved to become a clear example of external economies of scale. Virtually all industries have since benefited from the innovation.
More recently, many companies have been able to develop increasing returns to scale in the wake of globalization. By relocating production facilities abroad, companies can often significantly reduce their costs. The same applies to purchasing raw materials, which are often cheaper in other global markets.
The examples mentioned above led to major economic revolutions. But even on a small scale, changes can be made that lead to increasing returns to scale. For example, investing in office supplies like new IT systems can lead to higher productivity and therefore increase output. This provides a competitive advantage and can lead to further growth and economies of scale. As a result, operations can then be expanded, allowing even more efficient economies of scale to be exploited.