Overcapacity Problems of Modern Industries
The overcapacity problems in modern industries were caused by two main factors: increase in production capacity and decrease in demand. Increased production capacity is due to various investments from governments and investment from private companies. The increase in production capacity come from different approaches such as subsidies, tax exemptions, and other many different supportive policies. On the other hand, demand is affected by technological advancement, change in consumer preference, and purchasing power of consumers.
Since the emerging countries, such as China, have seen tremendous economic growth, industries are over enlarged to fit the increased demand. However, even with the higher purchasing power of consumers, production still cannot keep up. This has caused industries to become over-capacitated due to the fact that the production capacity needed to meet with the demand was overestimated. As a result, underutilization of equipment, overstocking of inventories, as well as lower operation efficiency, became the common problems in industries.
Aside from the economic situation, technological advancements have also played an important role in bringing about overcapacity in modern industries. Technological advancement often times comes with increased production efficiency and capacity, but this also reduces the demand for traditional products or services as businesses move towards the new technology. Moreover, new technologies can also quickly enter the market, leading to industries having to compete with businesses from all around the world, and ultimately, driving prices lower.
Furthermore, changes in consumer preference can lead to overcapacity problems in industries. Consumers tend to be more influenced by fashion trends, often times ignoring the functionality of a product. Manufacturers then focus on short-term profits, resulting in overproduction of certain products, leading to an industry overcapacity problem.
Finally, the overcapacity problems in modern industries can be attributed to the government policies. Government interventions, such as subsidies and tax exemptions, are often aimed at improving competitiveness, while in fact they only lead to an overproduction of certain products or services. This problem can be solved if the government starts to shift the focus of its investments, and pays more attention to industries with rational capacity.
To sum up, the overcapacity problems in modern industries are mainly caused by increased production capacity and decreased demand. Technological advancements and changes in consumer preference also have some role in the problem. The government has to play its part in solving the issue by adopting policies that shift the focus of investments towards rationally capacity sized industries.
