The Economics Of The Brick Cycle and Its Effects on Firm and Industry Structure
ii) Closures and Re-openings of Plants
If stockpiling bricks has to be continued for long periods of time, the only option for a yard will eventually be temporary closure. Again, large firms enjoy cost advantages over smaller ones in this process: large firms can redeploy key labour from the closed yard at other yards in the group. Small firms, on the other hand, have no option but to dismiss their key labour with the associated costs of doing so. They also run the risk of loosing the labour totally, with the consequent problems this entails when they want to start production again.
The M & MC found evidence that the yards remain open for longer and the ones that are part of a larger grouping could attract, with time, the best labour force because these yards offered more secure jobs. 1 Yards that tended to close more frequently were thought to have a larger casual element in their work. Output was thought to suffer as a result of this because of the consequent lack of skill in the yard and because the worker’s sense of pride and loyalty to the works was reduced.
The temporary closure of a yard requires continued funding for such items as maintenance costs and rates. In addition, considerable start-up costs are incurred when the yard is re-opened, The M & MC were told that for one non-fletton plant, this was as much as £110,000 in 1974. 2 LBC also told the M & MC that the cost of re-opening a small fletton works that had been closed for two years was £40,000 in 1972. 3 The costs arose mainly from repairs to kilns which are damaged if allowed to cool.
A yard that is part of a larger firm would be more able to meet the above costs of closedowns and subsequent re-opening. Firstly because any such costs could be met from the cash flow of a larger group, and secondly because money borrowed from banks for the purpose, would be obtained at more favorable rates because the larger firm would not represent such a large risk to the bank as would the smaller firm.
The ability of larger groups in the industry to make the above cost savings when output is altered, will have tree effects on firm and industry structure: i) smaller firms, because of higher costs, are most likely to be forced out of business by downturns in the brick cycle, ii) The cost savings available to larger groupings will act as an incentive for mergers to take place within the industry, iii) the ability of companies outside the industry to provide cheaper funds than banks may make yards and companies in the industry attractive to them, as possible candidate for take-over.
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