economies of scope
Economies of Scope is the saving a business enjoys from producing several different things together instead of making each one alone.
In plain English
Think of a woman who owns a grinding machine in her compound in Ibadan. If she only grinds pepper, the machine sits idle most of the day. But if she also grinds beans, tomatoes and ginger with the same machine, the same electricity bill and the same shop rent now cover four products instead of one. That spreading of cost across different things is economies of scope.
It is different from economies of scale, which is about making more of the same product cheaply. Economies of scope is about making different products cheaply because you are sharing the same resources, the same skills, the same building or the same delivery van.
A Nigerian example makes it clearer. A bakery in Lagos that bakes bread in the morning can use the same oven, the same staff and the same shop to bake meat pies and doughnuts by afternoon. The rent does not change, the oven does not change, but now three products are sharing one cost. That is real money staying in the owner's pocket.
In the United Kingdom, a supermarket like Tesco shows this well. The same store, same staff, same delivery trucks sell groceries, sell mobile phone contracts and offer banking services. Each new line does not need its own building, so the cost per product falls.
For someone in the diaspora sending money home, this idea shows up when a relative's small business, say a hairdressing salon, adds nail services and sells skincare products from the same shop. The rent you may be helping to pay covers more income streams, and that is often what turns a struggling shop into a stable one.
Big companies chase this deliberately. A bank offering loans, insurance and investment accounts under one roof, or a phone company selling airtime, data and now loans through the same app, are both leaning on economies of scope to grow profit without opening ten new offices.
A poultry farm in Ogun State spends ₦2,000,000 a year on land, staff and equipment to raise chickens. By using the same land and staff to also grow maize for chicken feed, and selling surplus maize, the farm spreads that ₦2,000,000 across two products instead of one, lowering the true cost of each.
Questions people ask
Is economies of scope the same as economies of scale?
No. Economies of scale is about cost falling as you produce more of one product. Economies of scope is about cost falling because you produce several different products using the same resources, staff or building.
Can a small business actually benefit from economies of scope, or is it only for big companies?
Small businesses often benefit the most because their fixed costs, like rent and equipment, are a bigger share of their spending. Adding a related product or service, using what they already have, can lift profit without much extra cost.
What is a simple sign that a business is using economies of scope well?
Watch whether the business offers related products or services using the same shop, staff, equipment or vehicle rather than opening a new operation for each one. That sharing of resources is the clearest sign.
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