Question

which of the following statements is true of vertical integration?
o a. it allows a firm to shed functions it does not perform well in order to focus on its areas of strength.
o b. it occurs when a firm attempts to gain more control over its value chain by developing the ability to perform processes previously performed by other organizations in the chain.
o c. it frees people, money, and other resources that had been tied up in insourced activities, allowing these resources to be employed in more profitable ways.
o d. it involves arranging for other organizations to perform value chain functions that were previously performed internally.

Explanation:

• Option a describes outsourcing (shedding non - core functions), not vertical integration.
• Option b: Vertical integration is about a firm taking on more parts of the value chain (e.g., a manufacturer buying a supplier or a distributor) to gain control, which matches this description.
• Option c: Freeing resources from insourced activities is related to outsourcing, not vertical integration.
• Option d: Arranging for others to do internal functions is outsourcing, not vertical integration.

Answer:

b. It occurs when a firm attempts to gain more control over its value chain by developing the ability to perform processes previously performed by other organizations in the chain.