Question

Shaw Industries, a giant carpet manufacturer, increases its control over raw materials by producing much of its own polypropylene fiber, a key input to its manufacturing process. This is an example of creating value by using __________.a. related diversification to achieve value by integrating vertically in order to acquire market power

b. related diversification to achieve value by pooling negotiating power to achieve market power
c. related diversification to achieve value by leveraging core competencies to achieve economies of scope
d. related diversification to achieve value by integrating vertically in order to attain economies of scope

Answer 1

A) related diversification to achieve value by integrating vertically in order to acquire market power

Step-by-step explanation:

Vertical integration happens when Shaw Industries controls more than one stage of the supply chain. The four stages of the supply chain are:

1. commodities
2. manufacturing
3. distribution
4. retail

Shaw Industries at least controls 2: commodities and manufacturing.

It took the decision of integrating vertically in order to increase its quality control over its key input, that way they can be sure their product has higher quality. By selling a better product in large quantities, they will gain market power.

Answer 2

(a) related diversification to achieve value by integrating vertically in order to acquire market power

Step-by-step explanation:

A company following a diversification strategy can create value for its shareholders only when the combination of the skills and resources of the two businesses satisfies at least one of the following conditions: An income stream greater than what could be realized from a portfolio investment in the two companies.