Multi International Business Facts Quiz

The vertical boundaries of a firm refer to the activities that the firm itself performs versus the activities that it purchases from independent firms. This means that the firm has control over certain activities and performs them in-house, while it outsources or purchases other activities from external sources. This distinction helps determine the extent to which a firm is vertically integrated and the level of control it has over its supply chain and production processes.

Dealerships have a downstream relationship with Toyota Motor Corporation because they are the final point of sale for Toyota vehicles. Dealerships purchase vehicles from Toyota and sell them to customers, making them a crucial part of Toyota's distribution network.

Arm's length market transactions refer to business transactions where the parties involved have no personal or close relationship with each other. In this type of transaction, the buyer and seller operate independently and there is no long-term commitment or collaboration between them. This suggests that the firm is less integrated and relies more on external suppliers or vendors for its goods or services. Therefore, arm's length market transactions are most representative of a less integrated firm on the "buy" end of the make-or-buy continuum.

Agency costs refer to the expenses incurred by a company in order to prevent and mitigate the potential conflicts of interest between the company's management (the agents) and its shareholders (the principals). These costs arise due to the possibility of managers acting in their own self-interest rather than in the best interest of the shareholders. The costs associated with slack effort and administrative controls to deter it are considered agency costs because they are incurred to ensure that managers are motivated to work diligently and in the best interest of the company's shareholders.

Influence costs refer to the expenses incurred when individuals or groups engage in activities that aim to affect the distribution of benefits within an organization. These costs can arise from efforts to gain power, influence decision-making processes, or manipulate the allocation of resources. Examples of influence costs include lobbying, political campaigns, and networking events. By engaging in such activities, individuals or groups may incur expenses such as hiring consultants, organizing events, or funding advertising campaigns to sway the distribution of benefits in their favor.

The biotechnology industry is experiencing disintegration because big pharma companies are decreasing their focus on product innovation. This means that they are no longer prioritizing the development of new and innovative products in the biotechnology field. This shift in focus is causing a broad pattern of disintegration within the industry, as product innovation is a crucial core function that drives growth and competitiveness. Without a strong emphasis on product innovation, the industry may struggle to keep up with advancements and meet the evolving needs of customers and regulatory requirements.

Scale economies can result in fixed education costs while in-house education methods may be more expensive. This means that buying talent from the market can be more cost-effective for companies, as they can leverage the existing training programs and resources of external training providers. By purchasing talent, companies can avoid the additional expenses associated with developing and maintaining internal training programs. This allows them to benefit from the economies of scale that external training providers offer, making it a more financially viable option for acquiring employees with specific skill sets.

The correct answer is "Perform activity internally". This option suggests that a vertically integrated firm is more likely to perform the activity internally rather than outsourcing it to external parties. This means that the firm controls and manages the entire production process from start to finish, allowing for greater coordination and efficiency within the organization. This approach is characteristic of vertical integration, where a company seeks to control multiple stages of the supply chain to gain a competitive advantage.

The correct answer suggests that firms should buy, rather than make, in general, because market firms are subject to the discipline of the market and must be efficient and innovative to survive. This means that by buying the product or service from the market, firms can benefit from the competitive nature of the market, which forces market firms to be efficient and innovative. This can result in better quality products and services at a lower cost for the buying firm.

An independent outsourcing partner refers to a company that provides services or resources to another organization, typically in a different location or country. This type of firm is not directly involved in the industry it serves, but rather specializes in offering specific services or expertise to help the client company streamline operations, reduce costs, or enhance efficiency. They are independent entities that work collaboratively with their clients on a contractual basis, often in areas such as IT, customer support, manufacturing, or research and development.

Firms are unwilling to endure the ill will generated by firing unproductive elements in an organization. This means that managers are hesitant to take action against unproductive employees in cost centers because it may create negative feelings and resentment within the organization. This makes it difficult for managers to effectively control and manage cost centers, as they may be reluctant to make necessary changes and remove unproductive elements.

During the partnership between Sony's hardware and software from 1998-2008, the primary agency cost problem that plagued them was manager/worker slacking. This means that there was a lack of motivation or effort from the managers and workers involved in the partnership, resulting in decreased productivity and efficiency. This could have led to delays, poor decision-making, and overall hindered the success of the partnership between Sony's hardware and software in the digital music industry.