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An existing business unit may plan to grow through modernization of operations. Modernization basically involves up gradation of technology to increase productivity, efficiency and product quality and to reduce wastages and cost of production in the long-run. The worn-out and obsolete machines and equipment are replaced by the modern machines and equipment to reap the benefits of latest technology. Modernization will lead to increase in efficiency and reduction of wastages. It will also increase the production capacity of the firm. Modernization plans can have the following implications:

(i)    A firm may resort modernization to maintain its position in the market. Thus, the purpose of modernization would be stability in operations in the coming years.

(ii)    Modernization may be perused with full vigor to stimulate internal growth. Thus, it is used as an internal growth strategy.

Advantages of Modernization

The benefits of modernization are as under:

(i)    Modernization increases the productivity and efficiency of the firm.
(ii)    It makes available better products to the customers.
(iii)    Because of increased efficiency and reduced wastages, the profitability of the firm goes up. Thus, the owners of the business are also benefited up.
(iv)    The competitive position of the firm in the long-run improves because of modernization.
(v)    The growth is systematic and does not affect the normal functioning of the firm..

However, a modernization plan can be implemented only if the firm has adequate capital trough accumulated saving or is able to raise capita from different sources for the acquisition of modern plant and machinery. The benefits of modernization will actually accrue if the workers are adequately trained in the new technique of production.

Limitations of Modernization

The limitations of modernization are as follows:

(i)    The internal savings of the business may not be sufficient to finance modernization of plant and machinery.

(ii)    The existing staff may experience problems in adapting to the new technology.

(iii)    The responsibilities of top executives would increase because of need to handle new product, technology and markets.

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