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Policy brief: Economies of scope

In well-populated areas, efficiencies are commonly gained through economies of scale.  In Sydney, for example, the same waste collection trucks may be able to collect from twice as many customers by driving a kilometer further into the next suburb, thus making collections per house cheaper. This creates economies of scale. But to double the number of customers for waste collection in a remote area such as the Ngaanyatjarra lands around Warburton in Western Australia, the truck would literally have to drive thousands of kilometers more; this would actually make collections per house much more expensive.

In these situations, it is more efficient to look for economies of scope. These are gained when the same organization does multiple activities in one place, rather than the same activity in multiple places. For example, the Ngaanyatjarra Council used to do road maintenance, waste collection, run the stores and health services, and provide accounting services for those lands.  It gained efficiencies by using one accountant for all its activities, and the personal relationships established with households for one activity could efficiently be used when doing the others.

The problem is that funding and tendering processes run from populated areas almost always implicitly assume efficiencies can only come from economies of scale.  This undermines the ability of remote organisations to benefit from economies of scope, and makes them uncompetitive.  From the program point of view, it actually increases the costs of (effective) services, or results in low effectiveness. This applies in many, diverse sectors.

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