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Cost advantages obtained from sources external to the organization. These comprise reductions in operating costs, associated with such considerations as the local availability of a skilled labour force, workers familiar with the industry in question, a technical college providing appropriate training, research facilities and the existence of ancillary industries providing materials, components, machinery or specialized services. External economies typically develop in a localized concentration of a particular activity (see growth pole). If not available externally, such facilities have to be provided internally, which increases costs. External economies are especially important to small firms. (DMS) |
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