Excess production capacity

At the national, international and plant levels excess capacity may occur. At the national and international levels, overcapacity occurs either as a result of the emergence of too many competing enterprises (as in the case of airlines serving the North Atlantic route, for example) or as a result of reaching the limit for import substitution (as in the case of consumer goods and light industries in many Asian countries). In the latter case it is generally agreed that the high cost of production in relation to the income generated by the investment or its failure to reach an adequate level is the ultimate cause of the failure of demand to rise. In countries such as India, this explanation is perhaps less important than the shortage of foreign exchange (due to the sluggish growth of exports) which has prevented the import of spare parts and special materials. At the manufacturing plant level, overcapacity may result from the size of parts and product inventories, excessive number of designs to meet market needs, assembly and design processes or an excessive number of employees.