bellabrooke
1. What is the level of transaction-specific investment for each…
1. What is the level of transaction-specific investment for each player in the following transactions? Which player is at greater risk of being taken advantage of?
A small, independent aluminum can plant just opened up near a large energy drinks manufacturer. The energy drinks company has 2 captive canning facilities on-site and a plastics bottler within 50 kilometers. There is no other beverage company within a 200 km radius.
A large and diversified law firm in Israel has outsourced its intellectual property research work to a specialist Indian firm. The Israeli contract constitutes 80% of the revenue for the Indian firm, while the outsourced work represents a cost saving of 10% for the Israeli firm. The Indian firm has invested in software and ongoing training that is customized to the Israeli context. They were one of 9 firms that had responded to the Israeli firm’s request for proposals.
A number of computer manufacturers rely on Intel to provide them with logic chips (CPUs), which are the “brains” of a computer. The computer manufacturers adapt their assembly processes, components, and even some of the software, to the latest chips from Intel. Intel supplies to several dozen such manufacturers and has very few competitors.
There are only a few nuclear-powered aircraft carriers in the world today, most operated by the US Navy. Each of these very complex “supercarriers” has been built by a single builder – Ingalls Shipbuilding, as promulgated by the US Department of Defense.
2. In each of the following situations, would you recommend vertical integration or no vertical integration? Explain.
Firm A needs a new and unique technology for its product line. No substitute technologies are available. Should Firm A make this technology or buy it?
Firm 1 has been selling its products through a distributor for some time. It has become the market share leader. Unfortunately, this distributor has not been able to keep up with the evolving technology and customers are complaining. No alternative distributors are available. Should Firm 1 keep its current distributor, or should it begin distribution on its own
Firm Alpha has manufactured its own products for years. Recently, however, one of these products has become more and more like a commodity. Several firms are now able to manufacture this product at the same price and quality as Firm Alpha. However, they do not have Firm Alpha’s brand name in the marketplace. Should Firm Alpha continue to manufacture this product, or should it outsource it to one of these other firms?
Firm 1 is convinced that a certain class of technologies holds real economic potential. However, it does not know, for sure, which particular version of this technology is going to dominate the market. There are eight competing versions of this technology currently, but ultimately only one will dominate the market. Should Firm 1 invest in all eight of these technologies itself? Should it invest in just one of these technologies? Should it partner with other firms that are investing in these different technologies?
3. Describe and discuss the conditions under which vertical integration may be rare and costly to imitate.
4. Visit https://rainforestcaribbean.com/ and examine their vertical integration strategy. State how they have vertically integrated. Also, give suggestions for further vertical integration and also whether you think there are areas where they could disintegrate.
