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.