Geographic and time distances are increased when companies either outsource or offshore some or all of their functional areas. Which type of risk are these companies facing?

While outsourcing can sometimes lead to a loss of innovative capabilities, this is not the primary risk associated with increased geographic and time distances. Companies can still foster innovation externally through partnerships or collaboration, even if they are not directly managing the operations in-house.

Outsourcing and offshoring are typically strategies employed to reduce costs, including labor expenses. Therefore, this choice does not accurately reflect the risks associated with increased distances; instead, these strategies often aim to mitigate costs rather than increase them.

Although transaction costs may increase due to complexities in managing remote relationships and logistics, this is not the most direct risk associated with the loss of operational control. Transaction costs are a potential consequence, rather than the primary risk, when companies experience the impacts of increased geographic and time distances.