What’s it: Specialization means focusing on a specific aspect of something bigger. It can be related to a product, task, job, or skill. For example, when a company specializes in a particular product, it focuses on a few goods rather than producing all the goods it can possibly produce.
Likewise, a country may specialize in products in which they have a comparative advantage. They focus on a particular product where they excel in factor endowments or technology. They then trade for other goods and services. Comparative advantage is the reason for international trade. And, when you study economics, economists will usually also talk about absolute advantage in comparison.
Then, another example is about work. When specializing in a particular job, workers perform the same tasks over and over again. Again, an example is a worker in a factory. Manufacturers break down complex production systems into specific units and tasks, each of which is interdependent. They then allocate workers to each unit to perform the same tasks regularly.
The importance of specialization
Individuals, companies, or countries become increasingly skilled by focusing on a more limited task or product. They benefit greatly from the learning and experience curve. It makes them more efficient.
When focusing on fewer products, companies can allocate more resources. They can be better at meeting consumer needs and wants than when producing multiple product lines. They can be better at digging up information, for example, about what product features are preferred by consumers.
Then, specialization in a limited product range also allows the company to lower costs. For example, say the company produces only one product. They can achieve higher economies of scale by buying inputs in bulk than when producing two or more products. In addition, they can also divide the production process into specific tasks, where workers focus on each job.
On the other hand, working on one or a few specific tasks can make workers more proficient. In addition, the longer they work on the task, the more experienced they are. And, finally, they understand how to get things done faster. Hence, they become more productive in performing their tasks.
How specialization works
Specializations can apply to individuals, businesses, and countries. As defined above, they focus on something more specific than doing everything.
At the individual level, specialization is usually associated with a career or area of expertise. When workers are experts, we sometimes refer to them as professionals usually recognized formally (by obtaining a certificate) or informally.
Each individual has unique talents, abilities, skills, and interests. It may arise naturally or be developed through education, training, or experience. Whatever it is, these unique talents make them able to do certain tasks better than others. For example, an accountant will analyze financial statements better than when he or she has to sell a product. On the other hand, a marketer is good at luring customers to buy but will find it difficult to analyze financial statements.
Then, the company seeks to exploit this unique talent. First, management divides work within the company into several business functions. Then, they put the right people in each functional area. So, they can optimize their skills and do their best.
Specialization can be related to what is marketed and how the company produces it at the business level. I mean, specialization can mean the company focuses on a limited line of products. Whereas related to production, it means dividing a complex production system into more specific parts. In addition, it often relies on automation and robots, assisted by workers.
Say you operate a business and manufacture one type of product. As your demand increases, you can gain economies of scale faster than focusing on two or more products. You need the same input. So you can buy in bulk more than when you make two or more products. Because of this, you are more likely to get a discount from the supplier for the purchase.
Then, in producing, you divide the production process into different specific tasks. And, each worker does one job.
However, their work is interdependent for the system to work. By doing specific jobs, workers become increasingly skilled. They get faster at doing the task and do it better because they learn from experience. For example, they learn from the mistakes they made before.
Finally, production specialization allows your company to lower costs. Not only comes from purchasing economies of scale, but also production efficiency.
Division of labor and specialization in the manufacturing business
Specialization involves focusing on a particular skill, activity, or production process. When operating a plant, the manufacturer maintains an assembly line with various interconnected stations. It aims to increase efficiency rather than producing the entire product at one production station.
Each station performs a unique task. When finished, the product goes to the next station until the final product is produced.
For example, in making a car, the production process involves stages such as a press shop, body shop, paint shop, and general assembly.
Press shop is the earliest process. Here, steel coils are molded into parts of the car from the doors, roof, and hood. Once completed, they are then sent to the body shop stage, where they will be assembled into a complete car shape.
After that, the output goes to the next process, namely the paint shop. Here, the car will be painted using a special color.
After the painting is complete, the output is brought to the general assembly. Here, the car began to be fitted with all the vehicle’s equipment, interior sides such as the dashboard, seats, and air conditioning; exterior sides such as wipers, tires, and lights; to the engine and transmission.
At the country level, specialization requires a country to focus on producing a particular good or service. David Ricardo suggests producing only those goods or services in which a country has a comparative advantage. This advantage refers to a superior position in producing a good or service because it has a lower opportunity cost than other goods or services.
When it can specialize in production, a country benefits from international trade. Take a simple example. A country can produce apples at a lower opportunity cost than oranges. Therefore, according to Ricardo, the country should specialize and dedicate all its resources to producing apples. Then, in meeting the demand for oranges in the domestic market, it can buy them from other countries.
Pros and cons of specialization
Specialization offers advantages, including production efficiency. For example, when focusing on a specific functional area, individuals can have the opportunity to become professionals, enabling them to earn higher salaries. Meanwhile, for companies, it allows them to gain faster economies of scale and more productive workers. As a result, firms can also produce more output.
But on the other hand, specialization also brings a negative side. Workers, especially in the manufacturing sector, can become bored with a monotonous work environment, lowering productivity. In addition, unlike workers in the service sector, specialization does not necessarily make them professionals because their work is manual and relies more on physical than mental.
Then, in production, the process can be stopped because one worker is absent or the machine at one station is down. In addition, the company does not obtain cost savings through economies of scope if it produces a single product line.
Then, the company also bears the risk of revenue concentration if it sells only one product line. But, conversely, if the company sells several products, the decline in sales in one line may be compensated for by sales in other lines.