Chapter 9

Credible Commitment:

A believable promise or pledge to support the development of a long-term relationship between companies.

HostageTaking

A means of exchanging valuable resources to guarantee that each partner to an agreement will keep their side of the bargain.

Parallel Sourcing Policy:

A policy in which a company enters into long-term contracts with at least two suppliers for the same component to prevent any incidents of opportunism.

Merger:

An arrangement between equals to pool their operations and create a new entity.

Backward Vertical Integration:

Company expands into an industry that produces inputs for the company's products.

Forward Vertical Integration:

Company expands into an industry that uses, distributes, or sells the company's products.

Competitive Bidding Strategy:

Independent component suppliers compete to be chosen to supply a particular component, such as brakes, made to agreed-upon specifications, at the lowest price.

Strategic Alliances:

Long-term agreements between two or more companies to jointly develop new products or processes that benefit all companies that are a part of the agreement.

Product Bundling:

Offering customers the opportunity to purchase a range of products at a combined price. Offered at a price discount.

Bureaucratic Costs:

The costs of solving the transaction difficulties that arise from managerial inefficiencies and the need to manage the handoffs or exchanges between business units to promote increased differentiation, or to lower a company's cost structure.

Strategic Outsourcing:

The decision to allow one or more of a company's value-chain activities to be performed by independent, specialist companies that focus all their skills and knowledge on just one kind of activity to increase performance.

Transfer Prices:

The price that one division of a company charges another division for its products, which are the inputs the other division requires to manufacture its own products.

Horizontal Integration:

The process of acquiring or merging with industry competitors to achieve the competitive advantages that arise from a large size and scope of operations.

Quasi Integration:

The use of long-term relationships, or investment in some activities normally performed by suppliers or buyers, in place of full ownership of operations that are backward/forward in the supply chain.

Vertical Disintegration:

When a company decides to exit industries, either forward or backward, to its core industry to increase profitability.

Vertical Integration:

When a company expands its operations either backward or forward.

Holdup:

When a company is taken advantage of by another company it does business with after it has made an investment in expensive specialized assets to better meet the needs of the other company.

Cross-Selling:

When a company takes advantage of or leverages its established relationship with customers by way of acquiring additional product lines or categories.

Tapered Integration:

When a firm uses a mix of vertical integration and market transactions for a given input.

Virtual Corporation:

When companies pursued extensive strategic outsourcing to the extent that they only perform the central value creation functions that lead to competitive advantage.

Acquisitions:

When one company uses capital resources such as stock, debt, or cash, to purchase another company.