Vertical Integration & Outsourcing SMU

In the strategic sourcing framework, firms vertically integrate when the strategic importance of the activity is ______(a)______ and the firm's competence to perform the activity is _______(b)________.

(a) high (b) high

All of the following are new and valuable control benefits that a firm gains when it vertically integrates with a supplier, EXCEPT:

Control over the final price of the product to the consumer so these are true: -Control over access to information about the supplier's -Control over the supplier's investments in assets, human resources, and management processes -Control over the supplier's incentive system

Which of the following statements about hybrid sourcing arrangements are TRUE? I. They describe arrangements that are not included in traditional models comparing integration, outsourcing, and partnership. II. They capture situations where a company needs to control either incentives or task design, but not necessarily both. III. They show that the only way to effectively control a task is to perform it inside the company.

I and II

Vertical integration and outsourcing decision refer to choices about the firm's

activities

The employment relationship differs from supplier relationships because:

employees give up control (to their employers) over aspects of work that cannot be specified in advance

According to the property rights theory of vertical integration, the company that internalizes an activity (e.g. by acquiring another firm) is the one that:

gains the most from the control benefits of performing the activity internally

According to transaction cost theory, vertical integration occurs under two conditions:

high uncertainty and high supplier asset specialization

Which of the following is NOT likely to lead to outsourcing an activity

increasing uncertainty regarding the volume of customer demand for the activity or its products

A firm should vertically integrate an activity in all of the following situations EXCEPT:

the firm's competence to perform the activity is high and the activity's strategic value is low

The "Efficient Boundaries" model of moving an activity in-house focuses on the minimization of the sum of which costs?

the sum of production costs and transaction costs