Capital Intensive

Capital-intensive •

‘Capital’ refers to the equipment, machinery, vehicles and so on that a business uses to make its product or service.

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Capital-intensive processes are those that require a relatively high level of capital investment compared to the labour cost.

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These processes are more likely to be highly automated and to be used to produce on a large scale.

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Capital-intensive production is more likely to be associated with flow production (see below) but any kind of production might require expensive equipment.

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Capital is a long-term investment for most businesses, and the costs of financing, maintaining and depreciating this equipment represents a substantial overhead.

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In order to maximise efficiency, firms want their capital investment to be fully utilised (see notes on capacity utilisation).

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In a capital-intensive process, it can be costly and time-consuming to increase or decrease the scale of production.