A computer manufacturer purchases the company that supplies computer chips for the company. Which type of corporate strategy is the company using

Rationale

Vertical integration

Vertical integration occurs when a company expands its operations by acquiring a supplier or distributor to control more of its supply chain. In this case, the computer manufacturer is purchasing the company that supplies its computer chips, thereby integrating its supply chain and reducing reliance on external suppliers.

A (Domain selection) YOUR ANSWER

A strategic alliance involves two or more companies collaborating while remaining independent organizations. This strategy typically focuses on shared resources or joint ventures for mutual benefit, rather than outright acquisition. In the scenario, the manufacturer is not forming a partnership but is instead taking control of its chip supplier.

B (Conglomerate diversification) YOUR ANSWER

Conglomerate diversification refers to a strategy where a company acquires businesses in unrelated industries to spread its risk and enhance growth opportunities. The acquisition of a chip supplier does not fit this definition, as both companies operate within the same industry—computers—thus, it is not an unrelated business acquisition.

C (Vertical integration) CORRECT

Domain selection involves choosing specific markets or sectors for a company's operations, focusing on which areas to compete in. This choice does not relate to acquiring suppliers or distributors; instead, it is about strategic positioning within a market. The purchase of a chip supplier is more about control over the supply chain rather than selecting a market domain.

Conclusion

The acquisition of a chip supplier by the computer manufacturer exemplifies vertical integration, a strategy aimed at streamlining operations and enhancing supply chain efficiency. Unlike strategic alliances, conglomerate diversification, or domain selection, vertical integration directly addresses the relationship between a manufacturer and its suppliers, allowing for greater control and potentially reduced costs in production. This strategic move helps ensure a consistent supply of essential components, bolstering the manufacturer’s competitive edge in the market.

A computer manufacturer purchases the company that supplies computer chips for the company. Which type of corporate strategy is the company using

Vertical integration

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