Rationalization is as full of pitfalls as it is of promises / Difference between rationalization and combination
Rationalization can be defined as “the application of scientific knowledge to the problems of waste and inefficiency in modern industry, and it is the process that brings together the advantages of planned production, pooling of research and technical know-how, centralized regulation of finance, modernization of productive processes and optimum utilization of manpower.”
The future of Indian industries lies in Rationalization- Indian industries have adopted traditional techniques of production. Because of this, production level is low, production cost is high and there is a lack of resources for further growth and expansion. So, Rationalization may be helpful in solving these problems. We can understand the need of Rationalization from the following points:
1. To Increase National Income: Due to rapid increase in population the per capita income of our country is very low. Increase in production and decrease in cost is essential to increase the per capita income and national income. Production can be raised only by adopting the planning of Rationalization.
2. To Increase Employment Opportunities: To reduce the burden of population on land and to make available the maximum opportunities of employment, it is very necessary to execute the planning of Rationalization.
3. To Remove Poverty: The main cause of poverty of Indians is the low level of production in Industries. The Planning of Rationalization will increase production, which would helpful in removing poverty.
4. To Increase Production Level: By adopting the Planning of Rationalization, modern methods of production are used in place of traditional techniques, which raise the production level, income increases, effective demand increases and country moves to the way of prosperity.
5. To Develop Mutual Co-operation : It is said about Indian Industries, lack of mutual co-operation, which results into higher costs and lower profitability. Therefore, it becomes necessary to develop mutual co-operation for maximizing profitability, which is made possible by the use of Rationalization.
6. To Increase Industrial Efficiency: In Indian Industries the level of skill and efficiency is low. By the planning of Rationalization mutual, co operation will increase. It will further increase industrial skill.
7. To Eliminate Uneconomic Units: In ancient Industries of India uneconomic units are found. This results in misuse of resources and increasing in cost. By adopting the planning of Rationalisation these can be eliminated by amalgamating into economic units.
8. For Replacement of Obsolete and Old Machines : In many Industries of India the machines are obsolete and old due to which labor productivity is low and costs are high. To change them Rationalization is essential.
9. To Encourage Exports: To encourage exports, it becomes inevitable to use new methods and techniques of Rationalization, so that the cost of production may be minimized and the goods may compete in the foreign markets.
This is why, it is said that for rapid and economic progress of India. Rationalization is necessary and it should be executed in all industries of India.
Rationalization is as full of pitfalls as it is of promises- This process is advantages as well as disadvantages for a business firm, as is discussed below.
Advantages of Rationalization
Rationalization brings about advantages in a variety of ways in various here’s of industrial organizations. They are summarized as follows:
(1) Advantages in Production: In the sphere of production, many advantages occur, chief of which are:
(1) Overhead costs of handling materials, etc., decline due to simplification. (ii) Research for new design becomes easier and less costly as the number of designs involved is small. (iii) Specialization, standardization and mechanization tend to reduce the average cost of output.
(2) Advantages in Management and Marketing: Similarly, other benefits occur in these two fields, which are:
(1) If rationalization embraces the whole of industry, common research abilities and administrative integration may get evolved. This would reduce costs of management.
(ii) Forecasting of demand for a smaller number of products becomes easier. It is easy to conduct marketing research for a smaller number of products.
(iii) The salesmen sell a fewer varieties more effectively.
(iv) The profitability also tends to increase.
(v) Since the cost of output is lower under rationalization, the products acquire greater competitiveness in the international markets.
(3) Advantages to Consumers. The consumers have the following advantages:
(1) Lower cost of Goods.
(ii) Quality of the product is ensured due to standardization and mechanization.
(iii) There is also convenience of choice for the consumer. He can make his purchase decision quickly as the number of varieties of the same product is limited. The consumer can also easily remember and identify limited variety whenever he makes a fresh purchase.
(iv) Better standard of living also results. Rationalization leads to increased productivity and lower costs. More goods thus become available in the consumer for the same amount of purchasing power.
(4) Advantages to Labour (Personnel): The workers also benefit directly in variety of ways. These benefits are as follows:
(1) Better wages: One great advantage of rationalization is greater wage for the wage-earners due to increased productivity.
(ii) Better security : In the long run security of service is also assured although in the short-run rationalization may reduce employment. As the time passes, there is general improvement in the economy due to low prices and higher productivity.
(5) Advantages to the Society: Rationalization also offers advantages to the society, chief of which are :
(i) Greater national income: Rationalization introduces scientific attitude in industry, thus the productivity increases which means greater national income.
(ii) Proper utilization of resources: Rationalization attempts to nationalize the distribution of resources over various industries. This ensures a proper utilization of resources.
(iii) Better export earnings: Rationalization also improves the competitive of industry in the international markets. Thus the export earnings become larger.
Thus, the above benefits necessarily provide a sound case for the implementation of rationalization schemes in industries. However, any scheme of rationalization must satisfy the following conditions:
(i) It must accommodate all labour that may be rendered surplus.
(ii) It must result in higher productivity and efficiency, otherwise rationalization becomes meaningless.
(iii) It must improve the level of earning of workers. In other words, the labour must share in increased surplus.
(iv) It must lead to reduction in costs and benefits the community.
Disadvantages or Opposition of Rationalization
Rationalization is opposed on the following grounds:
(1) Opposition by Workers : Rationalization measures have never been welcomed by the workers. They protest openly and loudly by resorting to protests and strikes. They oppose rationalization due to the following reasons:
(i) Retrenchment and Unemployment : Rationalization leads to retrenchment in those undertakings in which it is introduced because rationalization inevitably leads to improved technology. On the level of industry, productive units are closed down altogether. So, a number of employees lose their jobs. Besides, rationalization adversely affects employment potential. This argument is more valid in the context of our country, which faces a chronic unemployment problem. However, it must be stated in all fairness that this impact relates to short-run. In the long-run, as various adjustments in the economy take place, national income increases and employment potential also improves.
(ii) Down-grading: Rationalization necessarily implies employment of improved technology. This means that labour is relegated to lower position in terms of organizational structure.
(iii) Increased Work-load: Rationalization also increases the work load of labour. Workers regard rationalization as a clever and vicious method of increasing their work-load. The increased work-load strains their bodies, as well as minds, unduly.
(iv) Exploitation : Rationalization spells prosperity, which is not adequately shared by labour. It is labour that bears the main burden of rationalization. Workers get retrenched and they also share the burden of increased wok-load yet their share in the surplus arising out of rationalization in small. Hence labour is thoroughly exploited.
(2) Opposition Employers: Employers also do not welcome measures whole-heartedly. For this, they advance the following arguments:
(i) Increased risk: Rationalization most often implies a change in technology. Thus old plant has to be replaced by new plant and the replacement costs are many times over the old plant. This means huge investment is to be made in fixed assets. Hence the risks of the enterprise increase greatly since business conditions are changing constantly. Besides, as the productivity increases, investment in inventories would also go up. This would mean greater demand for working capital and hence increased risk.
(ii) Problem of raising funds: Since rationalization requires the raising of additional resources, this may pose a great problem. Internal funds may not be available at all. External funds also cannot be raised with ease because rationalization may not mean a certain return on additional investment in new technology
(iii) Problem of payment of higher wages: Rationalization also leads to a demand for higher wages because rationalization would increase per capita productivity.
(iv) Problem of Obsolescence: Investment in new technology brings in its wake increased risks due to obsolescence which may be caused by new inventions or innovations. Emergence of better machines in course of time may pose a problem for management. The owners are, therefore, often reluctant to invest in rationalization..
(v) Problem of Nationalization: The organization may not be willing to invest in rationalization because of the fear of nationalization. Investors often suffer losses on account of such measure.
(3) Other Objections : From the point of view of the community also rationalization may not mean economic and social good. The reasons are:
(i) Formation of monopolies: Rationalization in an industry combines the different units. It, therefore, leads to the formation of monopolistic combinations. The greatest drawback of such combinations is that they enjoy Government patronage.
(ii) Disadvantages of big business: As various units combine to introduce rationalization, the size of combination becomes large and unwieldy. Thus dis-economies of various types set in.
(iii) Destruction of small and cottage industries : Rationalization measures bring in their wake the establishment of giant combinations. These combinations have a most baneful effect on smaller firms.
