Modern manufacturers, who need reliable sources of materials and

I think it's about vertical acquisition. A company gains control over another company that operates within the same supply chain to mitigate expenditures.

Kaczet has pointed out another common phrase in the business world used to describe this type of arrangement (thanks!).

But to make this incredibly simple: owning the producers means literally owning the companies that produce. It's as simple as that. And if you own the companies that produce, then you don't have to negotiate contracts to purchase the components produced by those companies. Everything produced is already property of your company. I hope this helps clarify!

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.

IMO the central argument of the passage is that "Modern manufacturers, face an increasingly difficult choice between owning the producers of these items and buying from independent producers. "

Option A does support the central argument that YES they face a difficult choice because moving completely away from backward integration is not good.

Can anyone explain why 2 is B?

2 should be A IMO

"Independent suppliers may be unwilling to share innovations with assemblers with whom they are competing"

Bunuel SajjadAhmad

Question 2's answer choice is WRONG. It is actually A

Look here: https://www.gmac.com/executive-assessme ... -questions

Hi,

As per below sentence from passage.
"Where components are commodities (ferrous metals or petroleum, for example), backward integration almost certainly boosts profits."

Which profit is author talking about ?
GMATNinja MentorTutoring

Hello, Harsh2111s. Thank you for tagging me. To gain insight into what profits may refer to, we need to look at the passage for additional context:

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.

Up to the point in the paragraph at which profits are mentioned, we have read about manufacturers only. Thus, these profits must be attributed to manufacturers, and we are to understand that utilizing backward integration allows such manufacturers or companies to enjoy higher profits.

I hope that helps. If you have further questions, feel free to ask.

- Andrew

“To simplify” means “to make something easier to do or understand.” If a company removes the need for some purchasing and marketing functions, that will reduce the overall amount of purchasing and marketing work that is done. With less work required, purchasing and marketing operations would certainly be easier.

For that reason, removing the need for some functions does mean simplification, and (C) can be eliminated.

I hope that helps!

Hi lakshya14,

Please refer the detailed answer here:
https://gmatclub.com/forum/modern-manufacturers-who-need-reliable-sources-of-materials-and-144471.html#p1419512

Meaning of "qualifies"
https://gmatclub.com/forum/modern-manufacturers-who-need-reliable-sources-of-materials-and-144471-20.html#p2340991



Let us know if you still have doubts.
Thanks.

Firstly, the passage talks about "profits" whereas the options says "Profit margin". They are different things because "profits" mean the actual dollar value and "profit margin" is in terms of percentage.
Example: 100% profit on sale of $100 = $100 (profit)
1% profit on sale of $100,000 = $1000 (profit)
Profit margin is higher in the first one but the actual profit is higher in the second one.
Therefore, increase in profit margin does not imply increase in profits nor does a decrease in profit margin imply a decrease in profits.

Secondly, option B says "Sales of components". However, the passage says "Where components are commodities (ferrous metals or petroleum, for example), backward integration almost certainly boosts profits."
The passage talks about manufacturers in general and not only about manufacturers that have components as final commodities. So, option B must be correct.

In case you marked option D, then read the opening lines of the passage. Reliability is a common benefit to both the choices. The remaining three options are stated clearly in the first half of the second paragraph.

I was implying that if it was possible to have possible explanations along with the given OAs.

However, after a second sound reading, i don't feel the need for any explanations but still i cannot seem to understand this last sentence
" assemblers are often forced to integrate by purchasing the suppliers of components just to keep their suppliers in business. "

It was clear in the above lines of the same last paragraph that suppliers of components need to make huge investments in innovative technologies and as a result play with low profit margins. And since the ability of end-product assemblers to respond to market opportunities depends heavily on suppliers of components then: the highlighted portion comes and i am gone for a toss.

Is it implying that the assemblers/manufacturers turn to backward integration/owning the suppliers(producers of components) just to keep there suppliers in business?
If so, then it does not really makes sense for a firm to be doing both purchasing/becoming self sufficient supplier as well as keeping their suppliers on roll as well.

So please kindly explain that, if possible.
Cheers.

GMATNinja workout broall Gnpth
What actually " owning the producers " mean here can you please explain ?

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.

The part in bold makes D the correct choice

3. 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 paragrap.
(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 argument presented in the earlier paragraphs.

can some one please provide an answer to this?

I marked A. isnt the central idea of passage that it is difficult to make a choice between doing backward integration and not doing the backward integration?

Isnt last para an argument that supports the central idea as a whole?

For #3, it's important to recognize that all we have in terms of a central argument is the initial statement that manufacturers face a difficult choice between owning the producers and buying from independent producers. The author then goes back and forth, outlining advantages and disadvantages of backward integration (owning the producers). However, the second half of p2 and all of p3 are entirely about the disadvantages.

p4 presents a pivot, showing why it may not be great to move away from backward integration, despite its disadvantages. So the role of this paragraph in the passage as a whole is to show why the previous arguments may not lead to the conclusion one would expect--namely, a move away from backward integration. The meaning of "qualifies" here is "presents a limitation or exception to." When we qualify a statement, we're saying it is not universal or may turn out not be true under circumstances. For instance, if I say "I'm the best basketball player in my neighborhood--at least that I know of," that disclaimer at the end is a qualification of my original statement. (For another instance of this word in RC, check out Q1, answer B here: https://gmatclub.com/forum/it-is-an-odd ... 07145.html. People sometimes choose that answer, not realizing that it means the exact opposite of what they expect it to mean.)

Note that A, C, and E are all wrong for more or less the same reason. The paragraph is not part of a series of statements all supporting the same point. If they were, p4 would have to go in the same direction as the other paragraphs, and the point would have to be that backward integration was good or necessary. However, since the other paragraphs show evidence AGAINST integration and the point is just that the choice is tough, we have a more nuanced situation. Imagine a passage stating that anyone who wants an mba will have to study hard. The first paragraphs show why you may not actually need to take the GMAT, but the later ones show that in that case, you have to take the GRE, which also requires a lot of study. The point is not "Take the GMAT" or "Take the GRE" but rather "You'll have to study either way." That's kind of the situation we're in. P4 is one part of a two-pronged argument.

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Edited. Thank you.