Podcast
Questions and Answers
What is the primary focus of horizontal scope in a firm's operations?
What is the primary focus of horizontal scope in a firm's operations?
- Range of product and service segments (correct)
- Cost reduction
- Supplier negotiations
- Geographic expansion
What is the primary purpose of vertical integration strategies?
What is the primary purpose of vertical integration strategies?
- To participate in multiple segments of an industry’s value chain (correct)
- To enhance market competition
- To focus solely on end-user sales
- To minimize technology adoption
Vertical integration involves expanding a firm's business into new product categories.
Vertical integration involves expanding a firm's business into new product categories.
False (B)
Tapered integration involves exclusively in-house production.
Tapered integration involves exclusively in-house production.
What is one benefit of increasing a firm’s horizontal scope?
What is one benefit of increasing a firm’s horizontal scope?
What are the three types of vertical integration strategies?
What are the three types of vertical integration strategies?
A ________ is the combining of two or more firms into a single corporate entity.
A ________ is the combining of two or more firms into a single corporate entity.
A vertically integrated firm participates in multiple segments of the overall __________ chain.
A vertically integrated firm participates in multiple segments of the overall __________ chain.
What does vertical integration allow a firm to do?
What does vertical integration allow a firm to do?
Which of the following is NOT a disadvantage of a vertical integration strategy?
Which of the following is NOT a disadvantage of a vertical integration strategy?
Match the following terms with their definitions:
Match the following terms with their definitions:
Match the type of vertical integration with its definition:
Match the type of vertical integration with its definition:
Acquisitions can enhance a firm's bargaining power over suppliers and buyers.
Acquisitions can enhance a firm's bargaining power over suppliers and buyers.
Increased horizontal scope can help in reducing ________ among competitors.
Increased horizontal scope can help in reducing ________ among competitors.
Name one advantage of a vertical integration strategy.
Name one advantage of a vertical integration strategy.
Vertical integration can lead to slower acceptance of technological advances.
Vertical integration can lead to slower acceptance of technological advances.
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Study Notes
Strengthening a firm's market position
- Scope of operations determines a firm's competitive position; this includes breadth of activities performed internally, the range of a firm's product and service offerings, the size of its geographic market presence, and its mix of businesses
- Horizontal scope is the range of products and service segments a firm serves within its focal market
- Vertical scope is the extent a firm's internal activities encompass one, some, many, or all of the activities that make up an industry's value chain system
- Merger combines two or more firms into a single corporate entity
- Acquisition is when one firm purchases and absorbs another
Horizontal mergers and acquisitions
- Benefits of increasing horizontal scope include improved operational efficiency, heightened product differentiation, reduced market rivalry, increased bargaining power with suppliers and buyers, and enhanced flexibility and dynamic capabilities
- Objectives for horizontal mergers and acquisitions include creating cost-efficient operations, expanding geographic coverage, gaining quick access to new technologies, leading convergence of industries, and extending business into new product categories
Vertical integration strategies
- Vertically integrated firm participates in multiple segments or stages of an industry's value chain
- Vertical integration strategy expands a firm's range of activities backward towards sources of supply, or forward towards end users
- Types of vertical integration strategies:
- Full integration: a firm participates in all stages of the vertical activity chain
- Partial integration: a firm builds positions only in selected stages of the vertical chain
- Tapered integration: a firm uses a mix of in-house and outsourced activity in any stage of the vertical chain
Advantages and disadvantages of vertical integration
- Advantages include strengthening a firm's competitive position, boosting profitability, and adding to a firm's technological capabilities
- Disadvantages include increased business risk due to large capital investment, slow acceptance of technological advances, and less flexibility in accommodating shifting buyer preferences
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