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Questions and Answers
What is backward vertical integration and why might a company choose this strategy?
What is backward vertical integration and why might a company choose this strategy?
Backward vertical integration occurs when a firm merges with a supplier further back in the supply chain. Companies might choose this strategy to secure resources, ensure reliable sourcing, and control the quality or price of inputs.
Identify three reasons why a company might choose to merge with another firm to secure resources or supplies.
Identify three reasons why a company might choose to merge with another firm to secure resources or supplies.
A firm might merge with another firm to secure resources if: 1. the resources are rare or hard to get, 2. they need to ensure reliable sourcing, and 3. they need to ensure that the inputs are of a suitable quality or price.
Explain how Starbucks’ decision to buy a coffee farm in Costa Rica addresses the challenges of rapid international expansion and disease threats to coffee plants.
Explain how Starbucks’ decision to buy a coffee farm in Costa Rica addresses the challenges of rapid international expansion and disease threats to coffee plants.
By buying its own coffee farm, Starbucks ensures a reliable supply of high-quality coffee beans, mitigating the risks associated with competition for supplies due to rapid expansion and potential shortages caused by disease threats.
Describe a scenario, different from Starbucks, where a company might benefit from securing its own resource supply. Be specific about the industry and resource.
Describe a scenario, different from Starbucks, where a company might benefit from securing its own resource supply. Be specific about the industry and resource.
What are the potential risks or downsides of a firm choosing to secure its resources or supplies through acquiring another company?
What are the potential risks or downsides of a firm choosing to secure its resources or supplies through acquiring another company?
Flashcards
Backward Vertical Integration
Backward Vertical Integration
Merging with a firm further back in the supply chain to control resources.
Resource Security via Mergers
Resource Security via Mergers
Securing rare or hard-to-get resources through mergers.
Reliable Sourcing
Reliable Sourcing
Ensuring consistent input for a product or service.
Quality and Price Control
Quality and Price Control
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Starbucks' Costa Rica Farm
Starbucks' Costa Rica Farm
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Study Notes
- Firms sometimes merge to secure resources or supplies, especially further back in the supply chain, known as backward vertical integration.
- Reasons for merging include the rarity or difficulty in obtaining resources.
- Mergers ensure reliable sourcing and maintain suitable input quality and price.
- Starbucks acquired its own coffee farm in Costa Rica due to rapid expansion and disease threats to coffee plants.
- The acquisition aimed to secure a reliable supply of high-quality coffee beans amidst strong competition.
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Description
Firms merge to ensure reliable sourcing of resources, particularly through backward vertical integration. This strategy secures supplies, maintains quality, and stabilizes prices. Starbucks' acquisition of a coffee farm exemplifies this approach, ensuring a steady supply of high-quality beans.
