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Large companies between the late 19th century and 1970s expanded due to reductions in administrative costs relative to transaction costs from advancements in information and communication technology as well as management. During 1980-2000, large US companies accounted for a smaller percentage of total employment due to a more turbulent business environment and new technologies. Corporations benefit from outsourcing IT functions to specialists by gaining access to competent resources and expertise at lower prices with greater efficiency, though searching, negotiating, and contracting incur transaction costs.

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Patricia Cruz
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120 views

9

Large companies between the late 19th century and 1970s expanded due to reductions in administrative costs relative to transaction costs from advancements in information and communication technology as well as management. During 1980-2000, large US companies accounted for a smaller percentage of total employment due to a more turbulent business environment and new technologies. Corporations benefit from outsourcing IT functions to specialists by gaining access to competent resources and expertise at lower prices with greater efficiency, though searching, negotiating, and contracting incur transaction costs.

Uploaded by

Patricia Cruz
Copyright
© © All Rights Reserved
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Self-Study Question

1. Can the expanding scale and scope of large companies between the late 19th
century and the 1970s be explained by factors which reduced the
administrative costs of firms relative to the transaction costs of markets?

It's due to advancements in information and communication technology, as


well as management. Furthermore, due to the expansion of the commercial
enterprise's scope.

2. Figure 10.2 shows that during 1980–2000 large US companies accounted


for a smaller percentage of total employment—a development that is
attributed to “a more turbulent business environment and new information
and communications technologies” (p. 256). Explain why these factors
might cause large corporations to reduce their size and scope.

The hyper-sized company's shrinking size and breadth resulted in a stressed


functional organization, with personnel in separate divisions spending the
majority of their time deciphering the intricacies.

3. A large proportion of major corporations outsource their IT functions to


specialist suppliers of IT services, such as IBM, HP, Accenture, and
Capgemini. What benefits do corporations derive from outsourcing their IT
requirements? What transaction costs might arise from these
arrangements?

Companies benefit from outsourcing because they have access to competent


resources, cheaper prices, and greater efficiency. Furthermore, the businesses
will benefit more without losing quality or service. The expenditures of
searching, negotiating, and drafting contracts will be included in the
transaction costs.

4. Strategy Capsule 10.2 compares alternative strategies for exploiting


children's characters. Hello Kitty is owned by the Japanese company Sanrio
Co. Ltd. and is exploited throughout the world through licensing contracts
with toy makers, jewelry companies, fashion companies, restaurants, theme
parks, retail stores, and many other types of businesses. Could Hello Kitty be
exploited more effectively by a vertically‐integrated entertainment company,
such as Disney?
Disney, in my opinion, can better utilize Hello Kitty since Disney has a larger
brand image and worldwide identification than Sanrio Co. Ltd.

This study source was downloaded by 100000832116888 from CourseHero.com on 03-09-2022 10:40:54 GMT -06:00

https://www.coursehero.com/file/99247523/Strategic-business-analysis-3docx/
5. For its Zara brand, Inditex manufactures the majority of the garments it
sells and undertakes all of its own distribution from manufacturing plants to
its directly managed retail outlets. The Gap outsources its production and
focuses upon design, marketing, and retail distribution. Applying the
considerations listed in Figure 10.4, should Gap backward integrate into
manufacture?

Yes, because Inditex makes the bulk of the clothes it sells and handles all of its
distribution directly from manufacturing facilities to stores, backward
integration would benefit the company by lowering costs and making it more
lucrative (i.e., advantageous). Furthermore, the stronger the firm's
coordination (due to backward integration), the larger the benefits of vertical
integration.

This study source was downloaded by 100000832116888 from CourseHero.com on 03-09-2022 10:40:54 GMT -06:00

https://www.coursehero.com/file/99247523/Strategic-business-analysis-3docx/
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