TerraLoc competes in the market for global positioning devices and services. The company manufactures its own GPS units, which are smaller than those of any other competitor and include a proprietary battery that lasts 200% longer than any other competitor's battery and that TerraLoc manufacturers on-site. TerraLoc also has developed proprietary software that is much faster and more precise than that of any competitor. When developing the proprietary battery, TerraLoc decided to manufacturer the battery in-house to reduce the possibility that the company it outsourced the battery manufacturing to might reverse engineer the battery and sell a similar product to competitors. This possibility was especially troubling given that the company expected a significant increase in demand due to the improved battery life. Additionally, TerraLoc sells its products and services through its own direct sales force to ensure that its representatives highlight the longer battery life of TerraLoc's units.
-TerraLoc's decision to manufacture the battery in-house is most consistent with which explanation of vertical integration?
A)flexibility-based explanations
B)firm capability-based explanations
C)alliance-based explanations
D)opportunism-based explanations

Question

Quizplus · Accepted Answer

TerraLoc's decision to manufacture the battery in-house to prevent potential outsourcing partners from reverse engineering the battery and selling a similar product to competitors is an example of opportunism-based explanations for vertical integration. This approach is taken to mitigate the risk of opportunistic behavior by external parties.

TerraLoc Competes in the Market for Global Positioning Devices and Services