Question

Doncon Guitars is interested in pursuing backward integration to take greater ownership of the extraction of raw materials and production of components used in its signature line of guitars. Although this approach would lower the overall cost of producing a guitar, the costs associated with producing electronic pickups for sound amplification are far greater than those associated with sourcing pickups from a reliable supplier. Which of the following approaches is likely to produce superior results?

A. pursue taper integration

B. introduce a budget line of guitars to diversify the firms offerings

C. abandon the idea of of vertical integration entirely

D. invest in vertical integration despite the cost of producing pickups

Answer 1

The correct answer is A. pursue taper integration.

Explanation: taper integration combine bothe backward integration and market exchange. In the type of integration, producer buy some of the goods from external sources ( independent firm) and produce some of the products itself. In the given case, this type of integration will help Doncon Guitars to manage costs. After implementing taper integration Doncon Guitars will be able to maintain a balance between buying raw materials from reliable suppliers and producing guitars in its own.