Quiz 14 Corporate Strategy - Vertical Integration

ability to coordinate highly complex tasks to allow for specialized division of labor.

A primary advantage of organizing economic activity within firms is the:

industry value chain

A(n) _____ entails the transformation of raw materials into finished goods and services along distinct vertical stages.

taper integration

Apple and Nike have their own retail outlets and also use other independent retailers, both the brick-and-mortar type and online, to sell their products. This is an example of _____.

Information asymmetry

Bill is in an interview for a sales job that requires no experience. He is trying to portray himself as a highly enthusiastic, energetic person with high-level communication and interpersonal skills. The interviewer is convinced that Bill should be hired as a sales person in the company. However, in his resume, Bill had not mentioned his previous work experience as he was fired from that job on the account of using illegal drugs. Which of the following does this scenario best illustrate?

credible commitment

BioGrow Pharma Inc. wanted its research partner, an R&D company, to develop a cancer vaccine. However, the project required huge capital investments, and its research partner was not ready to solely face the risks involved. Thus, to gain its partner's confidence and to prove its involvement, BioGrow Pharma invested $100 million in the project. This investment made by BioGrow Pharma will result in a _____.

vertical integration.

Decisions relating to "what stages of the industry value chain to participate in" determine a firm's:

clean-technology sector and health care sector.

General Electric's CEO (Chapter Case 8), Jeffrey Immelt, decided to refocus GE's portfolio of businesses and leverage the firm's core competency in industrial engineering while pursuing future-growth industries. The two industries that CEO Immelt had identified as major future-growth industries were the:

Vertical integration allows firms to increase operational efficiencies through improved coordination of adjacent value chain activities.

How do firms benefit from vertical integration?

they have significantly greater value in their intended use than in their next-best use

Investments in specialized assets tend to incur high opportunity costs because the:

Principal-agent problem

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

Backward vertical integration

Neon Electronics Inc. sourced touchscreens required for its tablet computers, cell phones, and televisions from a manufacturer in China. But the demand for such components was high globally, and the supplier could not meet the quality standards of Neon Electronics. Thus, Neon Electronics decided to set up its own unit to develop and manufacture the required touchscreens. What does this scenario best illustrate?

engaging in strategic outsourcing.

Today, many companies use PeopleSoft and EDS to avoid maintaining a human resource management system. By doing this, these firms are:

The chief executive officer

Which of the following stakeholders of a company would most likely be responsible for formulating a corporate strategy?

reduces its level of vertical integration.

A firm that moves to strategic outsourcing typically:

A firm that manufactures and sells car engines to major automobile companies launches its own line of cars.

Which of the following best illustrates forward vertical integration?

Strategic outsourcing

_____ is best described as moving one or more internal value chain activities outside the firm's boundaries to other firms in the industry value chain.

Transaction costs are a means to explain and predict the boundaries of a firm.

Which of the following statements is true of transaction costs?

A machine solely designed to give a candy its trademarked shape

Which of the following best illustrates physical-asset specificity?

Equipment necessary for mining bauxite and aluminum smelting

Which of the following best illustrates site specificity?

The cost of searching for a contract manufacturer

Which of the following is an example of an external transaction cost?

Transfer pricing is one type of frequently occurring transaction costs.

Which of the following is true of the parent-subsidiary relationship?

Specialized assets

_____ are best described as unique assets with high opportunity costs that have significantly more value in their intended use than in their next-best use.

Forward vertical integration

_____ is best described as changes in a firm's scope that involve ownership of industry value chain activities closer to the end (customer) point of the value chain.