Critical mass and economies of scale in the supply of services by business support organizations

Abstract

Uses a large sample survey of businesses to demonstrate that a critical mass threshold exists for their use of business support organization services. This critical mass threshold is very marked for the two organizations examined: British case studies of chambers of commerce and government‐supported business training and advice bodies. Beyond this threshold, managers of chambers of commerce can achieve nonlinear returns to scale, while returns to scale for government‐supported bodies are almost exactly linear. Infers that this results from the very different motives of commercially based chambers and their members, compared to government‐supported bodies, which allow the benefits of service bundling for chambers while managers of government bodies have to deal with multiple discrete programmes offering few synergies. Also examines the effects of external economies of agglomeration and shows that these increase market penetration and hence reduce the catchment sizes necessary to reach critical mass only in the case of the most agglomerated urban and industrial centres.

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