2/28/2005

The Underdog Is Growing

In the article The Sweet Smell Of Orange, it shows the idea of returns to scale and how small companies generally have more to gain. Patriarch Max Appel and his wife, Elaine co-founded Orange Glo almost 20 years ago. Orange Glo started off as a small operation in the Appel's garage. They would test the product on their own kitchen cabinets before introducing it in the home and gardens trade show in 1986. It started to become a big hit so the Appels decided to bring some of their family members in on the product. After bringing some of their kids, who have obtained MBAs, they have decided that it was better for them to outsource the manufacturing. This would allow them to focus more on marketing the product. The family is still seeing an increase in returns to scale. It is tapering off as they start to become larger and producing a number of different products. I believe that in the next ten years the Appel family will have grown as much as possible and have a constant return to scale. There is also that threat of other substitutes that could cause Orange Glo to develop a decreasing return to scale.

3 comments:

Dr. Tufte said...

Good post. I don't have much to add other than the presence (or absence) of competitors is not what drives returns to scale. Returns to scale comes from the realities of the production process. That in turn causes firms to be more efficient when they are larger (or smaller). That then dictates the number of competitors.

Tit Luca said...

Very interesting.

Tit Luca said...

Wishing you all the best!