Find all School-related info fast with the new School-Specific MBA Forum

It is currently 01 Aug 2015, 15:35
GMAT Club Tests

Close

GMAT Club Daily Prep

Thank you for using the timer - this advanced tool can estimate your performance and suggest more practice questions. We have subscribed you to Daily Prep Questions via email.

Customized
for You

we will pick new questions that match your level based on your Timer History

Track
Your Progress

every week, we’ll send you an estimated GMAT score based on your performance

Practice
Pays

we will pick new questions that match your level based on your Timer History

Not interested in getting valuable practice questions and articles delivered to your email? No problem, unsubscribe here.

Events & Promotions

Events & Promotions in June
Open Detailed Calendar

Modern manufacturers, who need reliable sources of materials

  Question banks Downloads My Bookmarks Reviews Important topics  
Author Message
TAGS:
Expert Post
Moderator
Moderator
User avatar
Joined: 01 Sep 2010
Posts: 2640
Followers: 487

Kudos [?]: 3773 [0], given: 727

Modern manufacturers, who need reliable sources of materials [#permalink] New post 04 Jul 2012, 08:00
Expert's post
Modern manufacturers, who need reliable sources of materials and technologically advanced components to operate profitably, face an increasingly difficult choice between owning the producers of these items (a practice known as backward integration) and buying from independent producers. Manufacturers who integrate may reap short-term rewards, but they often restrict their future capacity for innovative product development.

Backward integration removes the need for some purchasing and marketing functions, centralizes overhead, and permits manufacturers to eliminate duplicated efforts in research and development. Where components are commodities (ferrous metals or petroleum, for example), backward integration almost certainly boosts profits. Nevertheless, because product innovation means adopting the most technologically advanced and cost-effective ways of making components, backward integration may entail a serious risk for a technologically active company—for example, a producer of sophisticated consumer electronics.

A company that decides to make rather than buy important parts can lock itself into an outdated technology. Independent suppliers may be unwilling to share innovations with assemblers with whom they are competing. Moreover, when an assembler sets out to master the technology of producing advanced components, the resulting demands on its resources may compromise its ability to assemble these components successfully into end products. Long-term contracts with suppliers can achieve many of the same cost benefits as backward integration without compromising a company’s ability to innovate.

However, moving away from backward integration is not a complete solution either. Developing innovative technologies requires independent suppliers of components to invest huge sums in research and development. The resulting low profit margins on the sale of components threaten the long-term financial stability of these firms. Because the ability of end-product assemblers to respond to market opportunities depends heavily on suppliers of components, assemblers are often forced to integrate by purchasing the suppliers of components just to keep their suppliers in business.
According to the passage, which of the following relationships between profits and investments in research and development holds true for producers of technologically advanced components?
1) Modest investments are required and the profit margins on component sales are low.
2) Modest investments are required but the profit margins on component sales are quite high.
3) Despite the huge investments that are required, the profit margins on component sales are high.
4) Because huge investments are required, the profit margins on component sales are low.
5) Long-term contractual relationships with purchasers of components ensure a high ration of profits to investment costs.
[Reveal] Spoiler:
D


_________________

COLLECTION OF QUESTIONS
Quant: 1. Bunuel Signature Collection - The Next Generation 2. Bunuel Signature Collection ALL-IN-ONE WITH SOLUTIONS 3. Veritas Prep Blog PDF Version
Verbal:1. Best EXTERNAL resources to tackle the GMAT Verbal Section 2. e-GMAT's ALL CR topics-Consolidated 3. New Critical Reasoning question bank by carcass 4. Meaning/Clarity SC Question Bank by Carcass_Souvik 5. e-GMAT's ALL SC topics-Consolidated-2nd Edition 6. The best reading to improve Reading Comprehension 7.Verbal question bank and Directories

Expert Post
Moderator
Moderator
User avatar
Joined: 01 Sep 2010
Posts: 2640
Followers: 487

Kudos [?]: 3773 [0], given: 727

Re: Profits and investments in research [#permalink] New post 05 Jul 2012, 05:52
Expert's post
1 KUDOS received
Manager
Manager
avatar
Joined: 10 May 2012
Posts: 58
GMAT Date: 09-10-2012
Followers: 1

Kudos [?]: 11 [1] , given: 14

Re: Modern manufacturers, who need reliable sources of materials [#permalink] New post 08 Jul 2012, 12:24
1
This post received
KUDOS
D

in the last para it says that "Developing innovative technologies requires independent suppliers of components to invest huge sums in research and development. The resulting low profit margins on the sale of components threaten the long-term financial stability of these firms."
Expert Post
Moderator
Moderator
User avatar
Joined: 01 Sep 2010
Posts: 2640
Followers: 487

Kudos [?]: 3773 [0], given: 727

Re: Modern manufacturers, who need reliable sources of materials [#permalink] New post 09 Jul 2012, 16:31
Expert's post
Current Student
avatar
Status: Now or never
Joined: 07 Aug 2010
Posts: 328
Location: India
Concentration: Strategy, Technology
GPA: 3.5
WE: Consulting (Consulting)
Followers: 7

Kudos [?]: 174 [0], given: 27

Premium Member
Re: Modern manufacturers, who need reliable sources of materials [#permalink] New post 07 Aug 2012, 21:47
Answer D , last para first line sums it up very well
_________________

Please press KUDOS if you like my post

Manager
Manager
avatar
Joined: 03 Jul 2012
Posts: 139
GMAT 1: 710 Q50 V36
GPA: 3.9
WE: Programming (Computer Software)
Followers: 3

Kudos [?]: 48 [0], given: 16

Re: Modern manufacturers, who need reliable sources of materials [#permalink] New post 25 Aug 2012, 11:27
I think its D, its explicitly mentioned in the last paragraph
1 KUDOS received
Intern
Intern
avatar
Status: Engineer to MBA
Affiliations: MBA
Joined: 22 May 2014
Posts: 40
Location: United States
Schools: INSEAD Jan '16
Followers: 0

Kudos [?]: 8 [1] , given: 187

Modern manufacturers, who need reliable sources of materials [#permalink] New post 14 Jan 2015, 06:42
1
This post received
KUDOS
carcass ,
You can add one more question to this passage...
The official GMAT exam (GMAC) posted the same passage and the following question in its Facebook page - "This Week's Question"


Which of the following best describes the way the last paragraph functions in the context of the passage?

A) The last in a series of arguments supporting the central argument of the passage is presented.
B) A viewpoint is presented which qualifies one presented earlier in the passage.
C) Evidence is presented in support of the argument developed in the preceding paragraph.
D) Questions arising from the earlier discussion are identified as points of departure for further study of the topic.
E) A specific example is presented to illustrate the main elements of the argument presented in the earlier paragraphs.


OA is (B)

Explanation ->
This question asks you to choose the statement that best describes the function of the last paragraph of the passage. The best answer is B. At the end of the third paragraph, the author indicates that assemblers benefit from contracting with, rather than owning, independent suppliers. In the last paragraph however, the author indicates that contracting with independent suppliers can itself present problems. Thus the last paragraph qualifies the viewpoint presented at the end of the third paragraph. Choice A is not the correct answer because the passage makes several points about backward integration, but does not present a central argument about this topic. Choice C is not the correct answer because the final paragraph qualifies rather than supports an argument made in the third paragraph about contracting with independent suppliers. Choices D and E are incorrect because the final paragraph does not identify questions or present a specific example.
Intern
Intern
avatar
Joined: 17 Sep 2013
Posts: 42
Followers: 0

Kudos [?]: 0 [0], given: 5

Re: Modern manufacturers, who need reliable sources of materials [#permalink] New post 16 Mar 2015, 07:29
Developing innovative technologies requires independent suppliers of components to invest huge sums in research and development.
The resulting low profit margins on the sale of components threaten the long-term financial stability of these firms.

--> Answer is D.
Re: Modern manufacturers, who need reliable sources of materials   [#permalink] 16 Mar 2015, 07:29
    Similar topics Author Replies Last post
Similar
Topics:
Experts publish their posts in the topic Modern manufacturers, who need reliable sources of materials and techn Bunuel 1 24 Sep 2014, 04:56
2 Experts publish their posts in the topic Modern manufacturers, who need reliable sources of materials Bunuel 3 17 Jul 2014, 13:17
3 Experts publish their posts in the topic Modern manufacturers, who need reliable sources of materials carcass 5 20 Dec 2012, 11:28
Experts publish their posts in the topic RC: Good tips/material needed aras82 3 28 Feb 2009, 13:54
Source of the Question javed 5 04 May 2007, 05:51
Display posts from previous: Sort by

Modern manufacturers, who need reliable sources of materials

  Question banks Downloads My Bookmarks Reviews Important topics  


cron

GMAT Club MBA Forum Home| About| Privacy Policy| Terms and Conditions| GMAT Club Rules| Contact| Sitemap

Powered by phpBB © phpBB Group and phpBB SEO

Kindly note that the GMAT® test is a registered trademark of the Graduate Management Admission Council®, and this site has neither been reviewed nor endorsed by GMAC®.