Where Can a Firm Draw Its Boundary?

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A firm can be defined as “A partnership for carrying out a business; the name under which a business trades.” (Dictionary) It is not always successful when a firm aims to render all services, and produce all goods required, within a business network. This would result in the firm having no focus. Production of goods would be expensive due to the wide scope of different products. The firm would also find it hard to enjoy the economies of large-scale production, as there is no specialisation on a single product or service. The business might not be equipped with the required resources in order to produce all goods and services efficiently. Obtaining all these resources is likely to result in high costs for the firm. Therefore it is advisable for a firm to specialise in a certain area of a business network, so as to become more effective and efficient in producing goods and rendering services, thereby bringing about ultimate results. By so doing, a firm can be said to be modestly considering its boundary. According to Figure 2 (Sanderson, 2010), every firm has three basic components. These consist of Revenue, Employees and Physical supplies. Thus, when a firm is considering where to draw its boundary in a business network, these basics need to be analysed. The revenue indicates the return to the firm by customers, based on the services that have been rendered. The firm can then decide if a service is worth rendering, depending on the amount of revenue generated. The number of employees in a firm would determine the speed at which goods can be produced. The skills that these employees possess would enable the firm to identify the goods and services that can be produced in - house. The above would inform a firm about its limits and thus help draw a boundary. This essay can be broken down into three main parts: The firm, its decision-making and the factors that

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