Chapter 07 Vertical Integration Answer Key
Multiple Choice Questions
1.
(p. 216)
According to transaction cost theory, vertical integration occurs under two conditions:
2.
(p. 197–
198)
A key assumption underlying theories of vertical integration is:
3.
(p. 207)
In the strategic sourcing framework, firms outsource when:
4.
(p. 202)
The property rights theory of vertical integration assumes that the organization that vertically
integrates an activity:
5.
(p. 215–
The standard theory of vertical integration over the industry life cycle states:
6.
(p. 206)
Vertical integration and outsourcing decisions are made for:
7.
(p. 206–
Which of the following is not a rationale for vertical integration?
8.
(p. 199)
Which of the following is not a key component of control determining vertical integration
decisions?
9.
(p. 206–
208)
In which of the following situations is a firm sometimes ill-advised to vertically integrate an
activity?
10.
(p. 203)
In the efficient boundaries framework, the coordination and production costs of vertical
integration relative to outsourcing:
True / False Questions
11.
The only situation forcing a firm to outsource is a change in its strategy.
12.
(p. 199–
Vertical integration usually occurs because of control problems with the supplier over
strategically important decisions.
13.
(p. 198)
The property rights approach to vertical integration has to do primarily with real estate
transactions.
14.
(p. 203)
According to the efficient boundaries model, when supplier asset specialization is high, vertical
integration is more costly than sourcing in the market.
15.
The strategic sourcing framework shows the conditions under which partnerships can occur.
16.
In the efficient boundaries model, vertical integration is determined by production costs alone.
17.
When demand or volume uncertainty is high, a firm should outsource the activity.
18.
(p. 214)
A firm with proprietary technology will be more likely to outsource technology development
when technological uncertainty is high and supplier markets are competitive.
19.
(p. 214)
Complementarities among the firm’s activities typically have little to do with boundary
decisions.
20.
(p. 211)
A profit center operating inside a firm and that sells to both internal and external customers is
considered a hybrid sourcing arrangement.
Short Answer Questions
21.
(p. 209)
What are the causes of the Chinese outsourcing phenomenon?
22.
(p. 211–
212)
Why is buyer control over task design ill-advised in particular types of hybrid sourcing
arrangements?
23.
(p. 202,
206,
214)
A startup firm has developed a prototype for a new-to-the-world product. The product requires
both hardware and software design expertise. The firm has a sufficient number of excellent
hardware designers to support the project but needs an entire software design team in order
to complete the project on schedule. Given its limited financial resources, the firm is
considering outsourcing the software design activity and has identified several suppliers with
strong software design capabilities. However, the firm also is concerned about protecting its
intellectual property. In addition, other startups are beginning to develop competing products
but a dominant design has not emerged and technological uncertainty remains high. What
should the firm do? Apply the strategic sourcing framework and content from the chapter to
support your answer.