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ABSTRACT
The commercial viability and feasibility of projects in oil and gas industry depends majorly on the economies of scale. The critical evaluation of the determinants of economies of scale with respect to Oil & Gas industry helps the companies achieving competitive advantage. The study focuses on four main types of services in oil and gas industry, viz. (a) Oil Field Services, (b) Energy & Utilities, (c) Business Consultancies and (d) Credit Rating. The study tries to measure the influence of the determinants of economies of scale on these services provided by the Oil & Gas Service Providers. This helps the service providers in gaining sustainable competitive advantage by optimizing time, cost and resource as well as in formulating suitable strategies by considering the critical factors of Economies of Scale in capacity-constrained situation.
Keywords: Economies of Scale, Cost Optimization, Risk Management, Commercial Viability
1. INTRODUCTION
Economies of scalei (EOS) are the key determinants of market structure and entry for any organization. The phrase "bigger is better" found in the history of economics which trace the history of economies of scale. The close coordination of economies of scale with era when demand of the products in the market starts increasing and mass production became the trend for most economic processes. The Economies of Scale facilitates a firm or an industry in identification and measurement of the horizontal boundaries, which identify the quantities and varieties of products and services that it produces. The extent of horizontal boundaries varies across industries, along with importance of scale economies. This source of Economies of Scale is very critical to formulating and implementing the competitive strategy.
In General, Economies of scale1 is defined as "reduction in cost per unit resulting from increased production, realized through operational efficiencies". Economies of Scale allow some firms to achieve a cost advantage over their rivals. Alfred Marshall has made a distinction between internal and external economies of scale. When a company reduces costs, time for completion and increases production, internal economies of scale is achieved. External economies of scale occur outside of the firm, within an industry in form of merger and acquisition or expansion or adding more product/service in the firm's offerings.
Oil & Gas industry is capital-labour-equipment intensive. It is capital...