Strategic Management Exam #2

Iselectrics, a medium-sized medical technology company, has been successful in its research and development but needs improvement in its European sales. Which of these actions would most likely lead to long-term success for Iselectrics's European sales? Acquire a company that has a successful medical technology sales force in Europe so that Iselectricscan gain access to new distribution channels. Alert the European Union that conditions in the European medical technology market are approaching oligopoly. Contact its congressional representative to request higher tariffs on European technology products. Initiate a hostile takeover of a European rival.

Acquire a company that has a successful medical technology sales force in Europe so that Iselectricscan gain access to new distribution channels.

Susan owns a firm that is considered fully integrated. Which of the following statements below would best describe a firm that is fully integrated? Susan's firm is a single-business organization. Susan's firm is more than likely a conglomerate. Susan's firm is still reliant on certain key suppliers in the industry value chain. All of Susan's business activities are conducted within the boundaries of the firm.

All of Susan's business activities are conducted within the boundaries of the firm.

Which of the following statements about managing alliance-related tasks is true? A merger is one of the three options for alliance design and governance. Alliance-management capability is based on three alliance-related tasks. Forming an alliance with another firm prohibits that firm from forming other alliances. In post-formation alliance management, none of the firms in an alliance is permitted to gain a competitive advantage.

Alliance-management capability is based on three alliance-related tasks.

Which of the following statements about managing alliance-related tasks is true? Alliance-management capability is based on three alliance-related tasks. A merger is one of the three options for alliance design and governance. Forming an alliance with another firm prohibits that firm from forming other alliances. In post-formation alliance management, none of the firms in an alliance is permitted to gain a competitive advantage.

Alliance-management capability is based on three alliance-related tasks.

________ refers to the degree to which decision making is concentrated at the top of the organization. Specialization Centralization Formalization Naturalization

Centralization

_____, which are incurred when pursuing a related-diversification strategy, are a function of the number, size, and types of businesses that are linked to one another.

Coordination costs

Dana wishes to strengthen her firm's marketing department by partnering with a large marketing firm that can complement her existing value chain. However, she fears potential legal repercussions including potential lawsuits filed by U.S. federal agencies such as the Federal Trade Commission (FTC). Which of the following strategic options should Dana pursue? Dana should purchase the marketing firm outright via an acquisition. Dana should implement green field operations with the marketing firm to strengthen her interanion reach. Dana should move forward with a hostile takeover of the marketing firm. Dana should consider forming a strategic alliance with the marketing firm.

Dana should consider forming a strategic alliance with the marketing firm.

Why is the optimal organizational structure a multidivisional structure? Its focus is on producing differentiated products. Its focus is on driving down costs. Its focus is on retaining activities within a single geographic area. Its focus is on establishing a flat hierarchy operated in a decentralized fashion.

Its focus is on driving down costs.

________, which captures the cultural fit between different firms, is one key element needed when selecting an alliance partner. Partner competency Partner compatibility Partner commitment Joint ventures

Partner compatibility

Which of the following is a result of horizontal integration in terms of Porter's five forces model? There is an increase in rivalry among existing firms. The industry structure becomes less consolidated. The industry structure becomes potentially less profitable. There is a reduction of excess capacity in the market.

There is a reduction of excess capacity in the market.

Angelika is the Chief Operating Officer of One Spice Inc., a firm that grows and processes the Naga Viper pepper, one of the world's hottest peppers. Angelika wants to better understand the relationship between her firm's organizational culture and the ability to achieve competitive advantage. The relationship between these two states that a firm is unable to achieve a competitive advantage if they are pursuing a differentiation strategy. a firm cannot achieve a competitive advantage when they have an effective organizational culture. a firm can achieve competitive advantage if their organizational culture follows the VRIO principles. a firm can achieve and sustain competitive advantage if their balanced scorecard is implemented correctly.

a firm can achieve competitive advantage if their organizational culture follows the VRIO principles.

Betasoloin Corp. is an automobile company whose core competency lies in manufacturing petrol- and diesel-based cars. The company realizes that more of its potential customers are switching to electric cars. The R&D department of the company acquires competencies in developing electric cars and launches its first hybrid car, which uses both gas and electricity. In this scenario, Betasoloin is primarily leveraging new core competencies to improve current market position. redeploying existing core competencies to compete in future markets. unlearning existing core competencies to create and compete in markets of the future. building new core competencies to protect and extend current market position.

building new core competencies to protect and extend current market position.

Delos Inc. is an apparel manufacturer. The management at Delos Inc. prefers moderate control over the operations of the different departments such as R&D, design, marketing, and sales. It allocates a budget to each function at the beginning of each quarter. This is an example of implementing control through multidivisional strategy. centralization. output controls. input controls.

input controls.

McDonald's operates Hamburger University that trains students to ensure consistent food quality across its outlets throughout the world. This indicates that McDonalds's is mechanistic in nature. has an informal structure. has a decentralized structure. is organic in nature.

is mechanistic in nature.

There are many reasons why firms need to grow. Which of the following reasons is strongly influenced by economies of scale?

lowering costs

A firm's ________ determines how the work efforts of individuals and teams are orchestrated and how resources are distributed. control norms structure culture

structure

In 1990, Roche, a Swiss pharmaceutical company, initially invested $2.1 billion to purchase a controlling interest in the biotech start-up Genentech. In 2009, after witnessing the success of Genentech's drug discovery and development projects, Roche spent $47 billion to purchase the remaining minority interest in Genentech, making it a wholly owned subsidiary. In terms of strategic alliances, this scenario best indicates the real-options perspective. co-opetition. the stakeholder strategy. explicit knowledge.

the real-options perspective.

Which of the following statements about managing alliance-related tasks is true? In post-formation alliance management, none of the firms in an alliance is permitted to gain a competitive advantage. Forming an alliance with another firm prohibits that firm from forming other alliances. Alliance-management capability is based on three alliance-related tasks. A merger is one of the three options for alliance design and governance.

Alliance-management capability is based on three alliance-related tasks.

American Snacks Inc., a conglomerate, has a strategic alliance with Très Bien Limité, a French snack-maker. However, Très Bien managers are concerned that the different business units of American Snacks will set up partnerships with direct competitors of Très Bien in France. What can owners and managers at American Snacks do to respond to Très Bien's concern? Sever the relationship with Très Bien and find a more trusting corporate partner. Arrange for the alliance to be managed at the corporate level. Require business units at American Snacks and Très Bien to sign loyalty pledges. Encourage business units at American Snacks to act independently.

Arrange for the alliance to be managed at the corporate level.

Which of the following statements is true of an equity alliance? An equity alliance is based on contractual agreements rather than partial ownership. In an equity alliance, a standalone organization is created that is jointly owned by two or more parent companies. An equity alliance creates weaker ties between the alliance partners when compared to a nonequity alliance. In an equity alliance, the partners frequently exchange personnel to make the acquisition of tacit knowledge possible.

In an equity alliance, the partners frequently exchange personnel to make the acquisition of tacit knowledge possible.

Using the Boston Consulting Group growth-share matrix, the managers of Fasehatice International determined that their business unit devoted to personal health monitoring devices was a star. Based on this finding, which of the following strategies is likely to produce the best results?

Increase investment in the personal health monitoring unit to encourage future growth.

Which of the following is an advantage of using a functional structure when pursuing a cost-leadership strategy? It allows a cost-leader to upgrade core competencies in manufacturing and logistics. It allows a cost-leader to operate in a decentralized organizational structure. It enables a cost-leader to build products that are different from its competitors' offerings. It enables a cost-leader to increase costs above that of its competitors.

It allows a cost-leader to upgrade core competencies in manufacturing and logistics.

Which of the following is an advantage of using a functional structure when pursuing a cost-leadership strategy? It allows a cost-leader to upgrade core competencies in manufacturing and logistics. It enables a cost-leader to increase costs above that of its competitors. It allows a cost-leader to operate in a decentralized organizational structure. It enables a cost-leader to build products that are different from its competitors' offerings.

It allows a cost-leader to upgrade core competencies in manufacturing and logistics.

One of Black Mesa's core values is to provide unbeatable customer service, a commitment introduced to the company by its founder more than 10 years ago. This value is expressed in the company's "Always You" campaign, which promises a no-questions-asked returns policy and an offer to stitch the customer's initials onto any item for free using a patented sewing technique, two features that are not offered by any of Black Mesa's competitors. Although the campaign has resulted in a 10 percent decline in profits, Black Mesa has decided to continue to pursue its founder's vision to reward customers and maintain employees' sense of purpose. Why does Black Mesa's culture, exemplified by the "Always You" campaign, fail to support a competitive advantage? Always lacks founder imprinting. It is not a rare resource. The culture is not difficult to imitate. It does not increase economic value creation for th

It does not increase economic value creation for the firm.

How has Kraft Foods benefited from its hostile takeover of Cadbury PLC? It has access to convenience stores and a new distribution channel. It has opened a market that is growing slowly but has high profit margins. Its main strategic focus is now on the domestic market. It gained a monopoly in the chocolate-manufacturing industry.

It has access to convenience stores and a new distribution channel.

Konmatfix Inc. recently acquired Finhigh Pharmaceuticals Inc. It now sells its own products along with the products originally sold by Finhigh Pharmaceuticals. As a result, Konmatfix's sales force will also be marketing the acquired company's products. How will this horizontal integration most likely affect Konmatfix? It will diminish its economic value creation. Konmatfix will reduce the size of its product line. It will lower its costs through economies of scale. Konmatfix will increase its cost of distribution.

It will lower its costs through economies of scale.

Two leading home appliance companies, Globex Inc. and Pug Tech, are in competition for market share. In their quest for exciting new products, Globex employs an open innovation model, while Pug Tech pursues a closed innovation model. Which of the following statements is most likely true? Globex has a greater chance of capturing market share. Globex is most concerned with securing first-mover advantages. Pug Tech will protect its intellectual property with patents and trade secrets. Pug Tech has a superior absorptive capacity.

Pug Tech will protect its intellectual property with patents and trade secrets.

Plexzap Sodas has been a market leader in the soft drink industry for several decades. However, its market research shows that consumer tastes have begun to shift to sugar-free flavored seltzer waters, a product that Plexzap is capable of producing with minimal changes to its facilities and production processes. Based on your knowledge of the core competence-market matrix, which diversification strategy should Plexzap pursue? Leverage existing core competencies to improve current market position. Build new core competencies to protect and extend current market position. Redeploy and recombine existing core competencies to compete in markets of the future. Build new core competencies to create and compete in markets of the future.

Redeploy and recombine existing core competencies to compete in markets of the future.

Better Pill LLC is a small, new pharmaceutical company that is developing a valuable new drug. Which of these strategies would it be wise for Better Pill's owners or managers to take? Pursue managerial hubris at all levels of development. Seek an alliance with a company or companies that will complete the value chain. Quickly build downstream complementary assets. Enter multiple learning races within strategic alliances.

Seek an alliance with a company or companies that will complete the value chain.

Which of the following scenarios best illustrates horizontal integration? Silis Inc. sets up its own distribution channel and retail stores. Siliss Inc. joins with Cancity Inc., one of its direct competitors. Silis Inc. acquires a component parts manufacturer who previously supplied to Silis' competitor. Silis Inc. enters into a licensing contract with a distributor in a new international market.

Siliss Inc. joins with Cancity Inc., one of its direct competitors.

________ are best described as voluntary arrangements between firms that involve the sharing of knowledge, resources, and capabilities with the intent of developing processes, products, or services to lead to competitive advantage. Embargos Cartel agreements Strategic alliances Corporate acquisitions

Strategic alliances

Why does strategy implementation often require changes within an organization? Strategy always follows structure. Strategy implementation transforms strategy into actions and business models. Strategy implementation is less important than strategy formulation. Strategy implementation does not affect resource allocation and power distribution within an organization.

Strategy implementation transforms strategy into actions and business models.

Which of the following examples describes the task of an alliance manager? Sam oversaw the agreement between her company and the potential alliance partner and offered support when needed. Teddy trained the employees of his alliance partner in the skills needed to create a display for an e-notebook. Jenn reviewed the alliance portfolio to make sure it fit with the corporate strategy of her firm. Tom used his knowledge of digital watches to help him manage the day-to-day operations of the alliance.

Teddy trained the employees of his alliance partner in the skills needed to create a display for an e-notebook.

The Estelle Leonard Talent Agency recently underwent a reorganization. Based on customer feedback, the company eliminated many of its middle management positions and implemented a flatter structure. Which of the following is a possible drawback of this decision? Employees will be forced to take on more specialized roles and may become bored by repetitive tasks. Internal communications and decision-making processes will be slower. The increased span of control for remaining managers may lead to higher levels of stress and possible burnout. Employees will have less power and autonomy, resulting in a loss of morale.

The increased span of control for remaining managers may lead to higher levels of stress and possible burnout.

A software firm is interested in acquiring an app development company that is small but highly profitable. The app developer also has a widely admired management structure and much lower attrition rates than are common in the industry. Which of these problems should the software firm anticipate? The software firm may overpay for the app developer, poorly serving the software firm's shareholders. The software firm may underpay for the app developer, cheating the app developer's shareholders of profit. A rival software firm may imitate this approach by acquiring a similar app developer. Because most acquisitions are profitable, there is little to worry about in this scenario.

The software firm may overpay for the app developer, poorly serving the software firm's shareholders.

Why is it difficult to imitate the organizational culture of firms like Southwest Airlines and Zappos? The employees in the organization themselves are unaware of the factors contributing to their organizational culture. They produce products that cannot be copied easily because of their complex designs. Their culture reflects complex relationships with their employees, customers, and suppliers. It is not commercially viable for other companies to implement the same culture.

Their culture reflects complex relationships with their employees, customers, and suppliers.

Which of the following is true of acquisitions? In acquisitions, two independent companies join to form a separate third entity. Acquisitions increase the competitive intensity in an industry. They can occur only when the involved entities are of comparable size. They can be friendly or hostile.

They can be friendly or hostile.

Which of the following statements is true of joint ventures? They are characterized by single reporting lines. They enable the exchange of both tacit and explicit knowledge. They cannot entail long negotiations. They reduce the possibilities of trust and commitment.

They enable the exchange of both tacit and explicit knowledge.

Which of the following is true of the process of organizing for competitive advantage? Formulating an effective strategy is a necessary and sufficient condition for gaining and sustaining competitive advantage. Strategy formulation and strategy implementation are independent activities. Organizing for competitive advantage is a static and not a dynamic process. To maintain competitive advantage, companies need to restructure as they grow and the competitive environment changes.

To maintain competitive advantage, companies need to restructure as they grow and the competitive environment changes.

In 2013, CEO Hsieh announced that Zappos would implement a reorganization in which, as Hsieh said, "... employees ... act more like entrepreneurs and self-direct their work ..." Hsieh changed Zappos from a hierarchy to a holacracy. a bottom-up to a top-down style. a holacracy to a hierarchy. a decentralized structure to a formalized structure.

a hierarchy to a holacracy.

Openlane and Yearin Technologies have together invested and created a new organization, Globex Corporation, to focus on developing diagnostic devices. Through this new firm, both companies are attempting to combine their core competencies to innovate and reduce their risks associated with transaction-specific investments. However, the new organization operates independent of Openlane and Yearin Technologies. Which of the following alternatives to integration does this scenario best illustrate?

a joint venture

When large, incumbent firms buy start-up companies, the transaction is generally described as a(n) joint venture. alliance. partnership. acquisition.

acquisition.

The Konex Hotel Group purchased Green-Plus Hotels for an estimated value of $120 billion. All the hotels previously owned by Green-Plus Hotels are now managed by the Konex Hotel Group and are known as Konex hotels. What does this scenario best illustrate? an acquisition an equity alliance a joint venture a merger

an acquisition

Denise wants to clearly communicate and create a ________, a key input control, before her team tackles business activities. This way the team will be able to better allocate her firm's scarce resources in order to accomplish the tasks at hand. mission statement budget results-only-work-environment (ROWE) carrot-and-stick approach

budget

Several notable firms like Eli Lilly, HP, Procter & Gamble, and IBM each wish to become the alliance "partner of choice" for small technology ventures, colleges, and inventors. They each know that ________ is a necessary and critical element for an alliance to be a success. a hostile takeover building interorganizational trust partner implementation sharing explicit knowledge

building interorganizational trust

Hooli, a web development firm, wants to implement an organic structure to foster innovation and attract the most talented creative minds. Which of the following features will make it difficult to do so? dedication to a cost-leadership business strategy flexible job descriptions for employees a wide span of control for managers decision-making power distributed throughout the organization

dedication to a cost-leadership business strategy

XYZ Inc. is a publicly traded company and a highly diversified firm. However, XYZ's most recent stock price is valued less than the sum of all its individual business units. We would conclude that XYZ is currently experiencing a diversification discount. diversification premium. two for one split. shareholder rights plan.

diversification discount.

Konmatfix Inc., a large consumer electronics company, has divided each product in its portfolio into a separate strategic business unit (SBU). The desktop SBU has been experiencing drastic decline in its cash flow, and its market share has also reduced to an insignificant 10 percent. This has been attributed to the low growth in the desktop market after the arrival of tablet computers and laptops. In the context of the Boston Consulting Group (BCG) growth-share matrix, the desktop SBU will be categorized under

dogs.

Jerry is the proud owner of American BBQ Eateries LLC. They currently operate in the southeast and have recently entered into a nonequity alliance with Big Bills BBQ Grills Inc., with a promise of sharing codified information via a licensing agreement. Which of the following best represents this level of sharing knowledge? strategic alliance knowledge core competency knowledge tacit knowledge explicit knowledge

explicit knowledge

Which of the following features helps match a cost-leadership strategy to a functional structure? decentralization process and product innovations focus on economies of scale flexibility and mutual adjustment

focus on economies of scale

Condax Electronics relied on a large chain of consumer electronics stores to sell its tablet computers, cell phones, and televisions and also to provide customer service and technical support. However, that retailer outsourced its service departments, and customers began to complain that they could not get reliable tech support for Condax products. In response, Condax Electronics decided to set up its own tech support department, and it also began to investigate opening its own brand-based retail stores. What does this scenario best illustrate? crowdsourcing new product development forward vertical integration conglomerate diversification

forward vertical integration

Jill is the CEO of Note's Etc, a stationary manufacturer. She decides to open up a retail store to sell her products directly to consumers instead of just selling to retailers. In order to do this, Jill will need to engage in ________, which is a corporate level, strategy.

forward vertical integration

Hot Potatoes, a fast food restaurant, operates through a business model in which individuals can buy the rights to set up Hot Potatoes stores and sell the company's food in return for a lump sum fee at the beginning of the contract and a percentage of revenues every month. The owners of the stores have to offer a menu approved by the company's headquarters and also maintain consistent customer service as expected in its flagship store. Which of the following alternatives to integration does this best illustrate? crowdsourcing credit rationing franchising bootstrapping

franchising

Elvira is the CEO of All Things Inc. which employs a matrix structure which is the combination of the ________ and ________ structure. M-form; simple functional; M-form simple; functional network; functional

functional; M-form

A firm that uses a structure that is organized along different business functions such as HR, R&D, Sales, and Marketing and also along different geographical areas such as different countries of the world is most likely using a ________ structure. simple global matrix functional multidivisional

global matrix

Several drawbacks exist when it comes to horizontal integration. Which of the following below is not one of the drawbacks? higher costs the possibility for legal repercussions from the FTC integration failure reduced flexibility

higher costs

Condax Autos Inc. merged with its competitor NOW Autos Inc. This allowed Condax Autos to use its technological competencies along with NOW Autos' marketing capabilities to capture a larger market share than what the two entities individually held. What type of integration does this scenario best illustrate? supply-chain perfect horizontal technological

horizontal

Condax Autos Inc. merged with its competitor NOW Autos Inc. This allowed Condax Autos to use its technological competencies along with NOW Autos' marketing capabilities to capture a larger market share than what the two entities individually held. What type of integration does this scenario best illustrate? supply-chain technological perfect horizontal

horizontal

Donware Inc. is a leader in producing winter sports equipment, including skis and skates. Recently, the firm decided to expand into the bobsled market and acquired Sleds by Gogozoom LLC This company produced bobsleds, but its sales had slowed. The managers of Donware convinced themselves that they were able to manage the business of Sleds by Gogozoom LLC more effectively even though they had no experience in the bobsled market. However, this move backfired and the sale of Sleds by Gogozoom LLC's bobsleds plummeted. Which of the following terms is often used to describe this scenario? winner's curse winner's disadvantage interdepartmental apathy managerial hubris

managerial hubris

Umbrella Corp is a notebook manufacturing company based in Ohio. Umbrella Corps' main market is Texas. It aims at providing its products at better prices than its competitors. Which of the following structures is Umbrella Corp likely to use if it has functional setup? matrix simple organic mechanistic

mechanistic

PolyCon's, a large and successful retail chain on the East Coast, decides to expand its operations across the United States. Which of the following organizational structures should PolyCon's use? multidivisional simple basic functional

multidivisional

Which of the following global strategies best matches with a multidivisional structure? international multidomestic global-standardization transnational

multidomestic

Which of the following types of organizations best helps match a differentiation strategy to a functional structure? rigid organization ambidextrous organization organic organization mechanistic organization

organic organization

E Corp is a pharmaceutical company that has many breakthroughs in medicine to its credit. Unlike many other pharmaceutical companies, E Corp has a relaxed work environment where employees are free to discuss projects with each other. Employees are encouraged to choose the projects that interest them; communication between team members and their supervisors is open and easy. Because of the company's work culture, its employees feel motivated to work harder and display more entrepreneurial behaviors. In this scenario, E Corp Inc. is most likely an organization that is centralized. organic. formalized. mechanistic.

organic.

To effectively implement a differentiation strategy, managers rely on a functional structure that resembles an organization that is highly formalized. specialized. organic. mechanistic.

organic.

VineRipe Tomato Inc. makes organic ketchup. To promote its products, this firm decided to make bottles in the shape of tomatoes. To accomplish this, VineRipe worked with its bottle manufacture to create a set of unique molds for its bottles. Which of the following specialized assets does this example demonstrate? site specificity research specificity physical-asset specificity human-asset specificity

physical-asset specificity

Managers in a firm hired to improve the firm's profitability and ultimately the shareholders' value will add to the overall costs if they pursue their own self-interests. What does this best illustrate?

principal-agent problem

The Boston Consulting Group (BCG) growth-share matrix locates a firm's individual strategic business units (SBUs) in which two dimensions? start-up capital required and stage of industry life cycle relative market share and speed of market growth economic value created and costs incurred amount of debt financing and equity financing

relative market share and speed of market growth

Oceanic Airlines Inc., a transportation firm, is headed by Denise Cordova, the CEO. Each functional department of the company—marketing, finance, and HR—has a president who reports to the CEO directly. Each department has various managers who manage teams. The managers report to the presidents, and the team leads report to the managers. Finally, the employees at the lowest level report to their team leads. It is rare for a lower-level employee to interact with the CEO of the company. In this scenario, Oceanic Airlines Inc. can be said to have a(n) flat hierarchical structure. decentralized organizational structure. tall hierarchical structure. organic organizational structure.

tall hierarchical structure.

Jared works as a front-line employee for a nationwide retail store. He reports to a floor manager, who reports to a departmental manager, who reports to a regional supervisor, who reports to a vice president, who reports to the CEO. Which of the following best describes this retail store? decentralize structure flat structure tall structure centralized structure

tall structure

The Hershey Company, the largest U.S. chocolate manufacturer, decided to enter the Chinese market because the U.S. population was growing slowly and becoming more health conscious. this would help the company gain access to large cocoa plantations in China. its strategic position in the U.S. market was well protected through high entry barriers. Hershey's main strategic focus was on product and market diversification and not on the domestic market.

the U.S. population was growing slowly and becoming more health conscious.

Which of the following is an example of an external transaction cost? the cost of setting up a production unit the cost of searching for a contract manufacturer the cost of recruiting and retaining employees the cost of maintaining plant and machinery

the cost of searching for a contract manufacturer

In a nonequity alliance, which of the following types of information would firms most likely share? the employees' entrepreneurial skills a manager's knowledge related to solving nonroutine problems the documented information about the material composition of a product a top-level manager's experience related to making strategic decisions

the documented information about the material composition of a product

It is necessary for government authorities such as the Federal Trade Commission (FTC) and/or the European Commission to approve any large horizontal integration activity because the horizontal integration activity changes the industry structure from oligopolistic to monopolistically competitive. the horizontal integration activity has the potential to reduce competitive intensity in an industry. the surviving firms will need protection against the relaxed entry barriers. the surviving firms will need to be protected against the increasing bargaining power of the suppliers.

the horizontal integration activity has the potential to reduce competitive intensity in an industry.

What is horizontal integration? the process of acquiring a competitor at a higher stage of the value chain the process of acquiring a competitor at a lower stage of the value chain the process of merging with a competitor at a different stage of the value chain the process of merging with a competitor at the same stage of the value chain

the process of merging with a competitor at the same stage of the value chain

A drawback of short-term contracting as an alternative to making a component in-house is that

the supplying firm has no incentive to make any transaction-specific investments to increase performance or quality.