Question 1

In which of the following situations is a firm sometimes ill-advised to vertically integrate an activity?

Accepted Answer

A)   the firm's competence to perform the activity is high but the activity's strategic importance is low
B)   the firm's control needs and relative competence to perform the activity are both high
C)   the supplier refuses to accede to the firm's control needs
D)   the activity is important to the firm and there are no alternatives to a weak supplier A

Question 2

In the strategic sourcing framework, firms outsource when:

Accepted Answer

A)   the need to control and the ability to perform the activity are uncorrelated
B)   there is high uncertainty surrounding the transaction with the supplier
C)   the firm's need to control, and its ability to perform, an activity are both low
D)   None of the above C

Question 3

Which of the following is not a key component of control determining vertical integration decisions?

Accepted Answer

A)   the supplier's growth rate
B)   supplier practices and policies
C)   strategic information
D)   the distribution of the economic return from the relationship A

Question 4

Vertical integration usually occurs because of control problems with the supplier over strategically important decisions.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following is not a rationale for vertical integration?

Accepted Answer

A)   the strategic importance of the activity has increased
B)   the relative competence of the firm to perform the activity has decreased
C)   uncertainty regarding demand (volume)  has increased
D)   none of the above

Question 6

A profit center operating inside a firm and that sells to both internal and external customers is considered a hybrid sourcing arrangement.

Accepted Answer

A) True 
 B)False

Question 7

The property rights theory of vertical integration assumes that the organization that vertically integrates an activity:

Accepted Answer

A)   has the strongest Value minus Cost position
B)   benefits the most from performing the activity in-house
C)   has the lowest control needs
D)   is the least opportunistic

Question 8

What are the causes of the Chinese outsourcing phenomenon?

Accepted Answer

The answer of What are the causes of the Chinese...

Question 9

According to the efficient boundaries model, when supplier asset specialization is high, vertical integration is more costly than sourcing in the market.

Accepted Answer

A) True 
 B)False

Question 10

The standard theory of vertical integration over the industry life cycle states:

Accepted Answer

A)   vertical integration increases throughout the life cycle
B)   vertical integration increases in the shakeout
C)   vertical integration occurs primarily in the early and late stages
D)   vertical integration decreases over the life cycle

Question 11

Vertical integration and outsourcing decisions are made for:

Accepted Answer

A)   products
B)   markets
C)   activities
D)   none of the above

Question 12

Complementarities among the firm's activities typically have little to do with boundary decisions.

Accepted Answer

A) True 
 B)False

Question 13

The property rights approach to vertical integration has to do primarily with real estate transactions.

Accepted Answer

A) True 
 B)False

Question 14

The strategic sourcing framework shows the conditions under which partnerships can occur.

Accepted Answer

A) True 
 B)False

Question 15

When demand or volume uncertainty is high, a firm should outsource the activity.

Accepted Answer

A) True 
 B)False

Question 16

A firm with proprietary technology will be more likely to outsource technology development when technological uncertainty is high and supplier markets are competitive.

Accepted Answer

A) True 
 B)False

Question 17

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

Accepted Answer

A)   low uncertainty and high supplier asset specialization
B)   high uncertainty and high supplier size
C)   high uncertainty and strong suppler market competition
D)   high uncertainty and high supplier asset specialization

Question 18

In the efficient boundaries framework, the coordination and production costs of vertical integration relative to outsourcing:

Accepted Answer

A)   both decrease as uncertainty increases
B)   act as complements
C)   both decrease as customization decreases
D)   both decrease as customization increases

Question 19

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.

Accepted Answer

The answer of A startup firm has developed a prototype...

Question 20

A key assumption underlying theories of vertical integration is:

Accepted Answer

A)   suppliers give up control over non-specifiable parts of an activity
B)   the boundary of the firm is a harmful myth that needs to be debunked
C)   firms know more about what they are doing than suppliers
D)   employees give up control over work that cannot be specified in advance

Exam 6: Vertical Integration and Outsourcing

In which of the following situations is a firm sometimes ill-advised to vertically integrate an activity?

In the strategic sourcing framework, firms outsource when:

Which of the following is not a key component of control determining vertical integration decisions?

Vertical integration usually occurs because of control problems with the supplier over strategically important decisions.

Which of the following is not a rationale for vertical integration?

A profit center operating inside a firm and that sells to both internal and external customers is considered a hybrid sourcing arrangement.

The property rights theory of vertical integration assumes that the organization that vertically integrates an activity:

What are the causes of the Chinese outsourcing phenomenon?

According to the efficient boundaries model, when supplier asset specialization is high, vertical integration is more costly than sourcing in the market.

The standard theory of vertical integration over the industry life cycle states:

Vertical integration and outsourcing decisions are made for:

Complementarities among the firm's activities typically have little to do with boundary decisions.

The property rights approach to vertical integration has to do primarily with real estate transactions.

The strategic sourcing framework shows the conditions under which partnerships can occur.

When demand or volume uncertainty is high, a firm should outsource the activity.

A firm with proprietary technology will be more likely to outsource technology development when technological uncertainty is high and supplier markets are competitive.

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

In the efficient boundaries framework, the coordination and production costs of vertical integration relative to outsourcing:

A key assumption underlying theories of vertical integration is: