Capital Intensive Vs. Labour Intensive
A business is capital intensive if it requires heavy capital investment in buying assets relative to the level of sales or profits that those assets can generate.
A capital intensive business will typically have some mixture of the following characteristics:
- high depreciation costs
- high barriers to entry
- large amounts of fixed assets on the balance sheet.
A labour intensive business is one in which the main cost is that of labour, and it is high compared to sales or value added.
Just a capital intensive business may attempt to reduce operational gearing by, for example, leasing or renting assets, a labour intensive one may try to reduce operational gearing by outsourcing or automation.
