Prior to Industrial Revolution, small scale production was prevalent in almost all countries. But later, large, scale production became a prominent feature of Industrial Organization. However small scale production was not completely disintegrated in industrial Organization. Small scale production withstood the competition from large scale production.

Several developed countries like America, Japan, France, Germany and Switzerland achieved economic progress due to the adoption of small scale production. Small scale production is quite common. It was not eliminated by the large scale production. At present in several countries small scale and large scale industries are working as competitive, complementary and subsidiary units. The forces that perpetuate the existence of small scale production or the reasons for the survival of the small scale production are due to the following advantages.

Advantages of Small Scale Production

1) Production according to the consumers tastes : Small scale production gives importance to the tastes and fashions of the consumers. The small scale producers will be able to grasp the needs and preferences of the consumers and produce commodities accordingly.

 2) Limited and Local demand: Small scale production is beneficial when the demand for goods is limited or small. For example, Pottery and crockery. It is very difficult to manufacture pot and crockery on large scale basis. Their demand is very limited.

3) Locally available raw-materials : Small scale production is surviving due to the availability of raw materials in the local areas. If the raw materials are heavy and if they are available at several places, several economies can be secured by starting small scale units in those places. Economies of Transport, distribution etc. are secured in small scale production.

4) Production of Perishable goods : Certain goods like flowers, milk, fruits, vegetables etc. are perishable in nature. They lose their utility within a short time. They can’t be transported to other distant areas. So they can be sold in the local markets only. Hence small scale production is profitable in the case of perishable goods.

5) Utilization of local laborers : Small scale production is suites to utilize the services of local laborers. They can be established at any place where laborers are available. Besides, the problem of migration of Labor can be overcome through industries.

6) Incentive to hard work: Small scale units are owned and managed by a few individuals. So they run the units with great care and caution. They maintain close and direct contacts with the workers. They extend co-operation to the workers and promote team leadership qualities. They strive to achieve maximum profits. Besides they give incentives to the meritorious and hard working laborers.

7. Quick decisions : Small scale production is convenient for taking decisions without any delay. As the size of capital, laborers and market are limited, the entrepreneurs of these industries take decisions and solve problem without wasting time.

8. Reorganization of methods : It is very easy to introduce any change in the establishment, management and organization of the small scale units. The small scale producers can change the methods of production according to the changes in demand or technical conditions.

9. Direct relations between the producer and the consumer: There exists direct relationship between the producer and the consumer in small scale production. As a result production of articles is carried on with a view to satisfy the consumers. There exists no middlemen between the consumers and producers in this system.

10. Direct contacts between the employers and the workers: Small scale production establishes direct contacts between the employers and the workers. The employers and the workers discuss together and make agreements regarding their problems. As a result, strikes and lockouts have no scope in small scale production.

11.Economy of transport : Small scale production secures economy of transport. It is profitable to establish small scale units nearer to the markets when transport, distribution and communication costs increase over a particular limit.

12. Continuous demand : Small scale production is preferred when the demand is continuous and changing. Large scale production is uneconomical and undesirable in this regard.

13. Industries without machinery : Small scale industries require less capital. They can be managed with small machines and implements, They do not require heavy machinery. For example the manufacture of toys,  hand tools and slates can be organized by small scale industries.

14. Psychological factors: Small scale production is surviving due to the psychological feelings of the consumers. There are several consumer who prefer to buy man-made goods. They consider that man-made goods have good quality and appearance.

 15. Ancillary industries: Now-a-days small scale Enterprise are started as ancillary units to the large scale industries. They manufacture supply several parts and components required by the large scale industries. For example watch making. A watch making industry depends on small scale units for the necessary spare parts of watches.

16. Elimination of monopoly: Small scale production effectively eliminates the growth of monopoly institutions. As a result it helps the consumers to buy goods at cheaper prices.

17. Decentralization of industries : Small scale production also helps in checking the concentration of industries in a particular place. As a result regional imbalances, economic inequalities, unemployment, poverty, backwardness etc. can be removed.

18. Employment opportunities : Small scale production promotes employment opportunities and solves the unemployment problem. This is due to the fact that they require more manpower than machines for their working.

Disadvantages of small scale production :

Small scale production has has the following disadvantages :

1) Small scale units can’t secure the economies of finance and credit.

2) There is little scope for introducing division of labor.

3) Marketing economies can’t be secured as the small scale units buy only small quantity of raw-materials and sell limited quantity of articles.

4) Economics of research and experimentation are not possible.

5) Economies of management arc also not possible.

6) Small scale units can’t withstand the competition from large scale industries.

7) Up-to-date technology can’t be adopted due to the small size of the units.

8) It is not possible to utilize the by-products in these units.

9) Economies of information and publicity are not possible.

In spite of their disadvantages, the small scale units have a unique place in the modern industrial organization. The large scale industries can’t altogether eliminate the small scale units. The governments in several countries have been extending complete assistance for the development of the small scale enterprises. Industrial estates are established and infrastructural facilities are provided for the progress of the small scale enterprises.

Governments are taking measures for achieving co-ordination between she large scale and small scale industries. It ma, be noted that economic progress is not possible in the absence of small scale industries. That is why these industries are provided with all types of assistance. In our country also the central and state governments have been providing incentives to the entrepreneurs for establishing  small scale industries.