Specialization and Exchange

Specialization in Business:

Specialization in business refers to an act of concentrating an individual, a firm, company, an institution or a nation's workforce towards manufacturing limited range of goods, or rendering of specific services, in a manner that showcase efficiency and expertise which gives the specialized entity a comparative and absolute advantage over other similar businesses.

Simple put, one who specializes in the production of specific products, (or rendering of specific services) will become more efficient and innovative (in that line of product and service), and as such, produce its best quality at a lower cost. Take for instance, Apple is a techonlogy giant that specializes in manufacturing products like iPhone, MacBook, iPad, iMac, Apple watch and so on. These technologies can be synced effortlessly with one another, and are often ranked highly amongst the best.

You can read various key points in commerce here.

From the above definition of specialization, being efficient refers to a means of achieving maximum productivity with minimum wasted effort (or expense); and this is precisely what specialization does. In this regard, countries engaging in goods and services specialization can trade them with other countries at a comparative advantage. However, the people dwelling in other regions (within the same country) where such specialization is practiced can also enjoy high quality manufactured goods and rendered services at a lower cost.

Please read the concept of production here.

Specialization does not always exist on its own. Rather, there is always an exchange at the other end. This form of exchange is termed trade. 

The exchange associated with specialization may occur at an individual level. For instance, a person who specializes in the rearing of cattle will likely do that in order to exchange the cattle for money at the right time. Similarly, individuals may also offer their skills to companies (or institutions) in exchange for money. For example, professional footballers offer their specialized skills to football clubs, and are well paid in return.

Note: The terms 'trade and exchange' are quite synonymous. However, we shall use the term 'trade' in place of 'exchange' in this article.

You can read on balance of trade and balance of payments here.

The concept of specialization is considered a reason why international trade thrives in our world. This is true because no country has a monopoly of all natural resources. For example, China is considered a technology hub of the world since it can manufacture almost everything. However, the country still requires the importation of certain raw materials to drive their  economy; for instance, crude oil.

Meanwhile, understand that  firms, factories and companies that specializes in the production of one or more products will likely become a leading standard in that line of production, while also making more profit. Similarly, organizations involved in rendering services will become ranked based on their level of specialization efficiency.

Specialization in commerce may sometimes be conceptualized as division of labor. In this regard, specialization will ultimately result into a more efficient production of goods and rendered services.

Please read an introduction to division of labor here.

The economies of nations that specialize in the production of goods, and rendering of services will often have a comparative advantage over other nations (in this line of production). You can think of comparative advantage as an act of producing standard goods, or rendering professional services at a lower opportunity cost, and marginal cost with regards to the production of other goods and services.

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An instance of comparative advantage is seen when a nation produces quality apples at a lower cost than mangoes. In this instance, such nation can be considered to have a comparative advantage in apple production. Therefore, the nation will expend less resources in the production of apples, and may even benefit via foreign trade by exchanging them with mangoes from another nation. Meanwhile, understand that the production of mangoes by other nations may have comparative advantage over those of apples. Therefore, both trading nations benefit from the exchange.

You can read on the disadvantage of barter system here.

Aside bringing about comparative advantage, specialization may consequently result into a concept termed 'absolute advantage' to a nation's commerce. This implies that the nation produces a larger quantity of similar goods (or services) than another country when given the same (or even lesser) quantity of inputs per unit of time, alongside the same conditions and constraints. In this regard, absolute advantage ensures that all the processes of production are quite more efficient through specialization. 

• Some of the positive outcomes of specialization include comparative advantage and absolute advantage respectively.

Please read on the principle of marketing mix here.

It is noteworthy to state that foreign trade thrives from the specialization of different economies, nations, or regions. This broad scale of specialization is termed macroeconomic specialization.

Please read more on foreign trade here.

Macroeconomic specialization focuses on a nations economy.

Specialization and its corresponding local trade can occur within a country. Using Nigeria as an instance, its nothern region is specialized in agricultural practices like food cultivation and animal rearing. Some of these products are transported to the southern region of the country where they are traded and consumed. However, Nigeria's southern region is notable for its many industries, production factories, vibrant economy. For instance, Lagos is situated in south west Nigeria, an it ranks among the largest economy in Africa.

Please read on historical background of commerce in Nigeria here.

Specialization can occur at an individual or personal level. This requires that a preson trains himself or herself towards gaining one or more skills. Some persons may even be talented in this regarded. For instance, footballers often discover their skills and passion for the game at an early age, and may concentrate (or specialize) on this sport, working hard through constant trainings and practices until they become professional footballers.

Apart from football, numerous other professional statuses require trainings to attain specialization. Some of these include doctors, teachers, architect, civil engineers, mechanics, carpenter, phone engineers, ethical hackers, forex traders, boxers, athletes and so on. This form of specialization is termed microeconomic specialization. The point to note here is the fact that it results from one's resolve towards focusing on one (or a few) specific skill through constant learning, training and practices.

You can read motivation quotes for students here.

Microeconomic specialization focuses on individuals and their respective skills.

As stated earlier, division of labor is often considered a form of specialization. It simple imply that the production of goods (or rendering of services) is divided into different process. In this regard, each process is performed by one or more specialized individual, thus making the job more efficient.

An instance of division of labor is seen in a football team with each players specialized on their respective positions (or roles). For example, the goalkeeper specializes in saving the ball from going into his or her goal post, while the striker specializes on goal scoring.

Please read on the forms of division of labor here.

Specialization often results into an economies of scale. 

Economies of scale refers to the reduction in costs of running a business, often brought about by specialization, leading to a consequent increase in amount of produced goods.

With regards to the above paragraph, if company 'A' produces 100 bags of 50kg rice at a cost of ₦100, while another company 'B' produces 50 bags of 50kg rice (of the same quality) at the same cost of ₦100; then company 'A' can be said to have an economies of scale (since it produces more rice at the same price), while company 'B' has a diseconomies of scale.

You can read on the wholesale market here.

The concept of opportunity cost may also be applied to specialization. Recall that opportunity cost refers to the best alternative that was let go in order to achieve your goal. Simply put, it refers to what you're giving up in order to achieve what you doing now. 

An instance of opportunity cost is seen when a person gives up a part-time job to focus fully on his education. The abandoned part-time job is considered an opportunity cost to the education in this instance. Through this process, the individual focuses more on his education, thus eventually specializing in his discipline of choice.

Please read on scale of preference and opportunity cost here

In summary, specialization often lead to exchange of goods and services. This business specialization can be achieved through division of labor, and perhaps, opportunity cost; ultimately bringing about a comparative advantage, an absolute advantage, increased brand recognition and economies of scale respectively.