Now that companies can quickly obtain goods, information, and

Question

﻿Now that companies can quickly obtain goods, information, and technology from around the world, conventional wisdom about how companies compete has been questioned. In theory, more open global markets and faster transportation should diminish the role of location in competition. A generation ago, the importance of location to companies' success was widely recognized: because success was determined largely by the cost of "inputs," such as raw materials and labor, locations with some important endowment such as a natural harbor or a supply of inexpensive labor could offer significant competitive advantages. Now, it is argued availability of inputs locally is no longer a source of competitive advantage since any company can obtain these inputs efficiently from a distance through global markets. Instead, competitive advantage today supposedly is gained through continuous innovation and the efficient use of inputs, factors that have conventionally been seen as independent of location.

But if location matters less, what accounts for geographic "clusters" of unusually competitive businesses in particular fields, such as the leather fashion industry in northern Italy? Clusters are concentrations of competitors in a given industry and other entities important to that industry, such as suppliers of components, machinery, and services. Many clusters include other institutions-universities, think tanks, and trade associations-that provide specialized training, information, and technical support. Being part of a cluster allows companies to obtain inputs more efficiently. For example, companies in thriving clusters can tap into an existing pool of specialized employees, thereby lowering their recruiting costs. A well-developed cluster also provides an efficient means of obtaining other important inputs because it encourages the local development of a deep and specialized supplier base; obtaining inputs locally instead of from distant suppliers lowers transaction costs in many cases.

Of course, a cluster also fosters competition among its constituent businesses, a fact that might seem to offset the advantages of cluster membership. Competition for resources among cluster constituents might be expected to render those resources more scarce and therefore more expensive. But companies do have the alternative of obtaining many inputs from distant locations, encouraging local suppliers to offer competitive prices. Furthermore, clusters increase not only the demand for specialized inputs but also the supply of them. Competition among cluster constituents then encourages the innovation that keeps constituent companies competitive in the larger business arena.   1 
 ﻿1. The passage identifies each of the following as a phenomenon associated with cluster inputs EXCEPT:

A. Clusters affect not only the demand for inputs but also the supply of inputs.
B. Clusters tend to lower the costs of recruiting qualified workers because the clusters encourage the development of specialized labor pools.
C. Competition between local suppliers and distant suppliers of inputs to cluster constituents encourages the local suppliers to hold down prices.
D. To penetrate a cluster market, distant suppliers of inputs needed by cluster constituents sometimes offer those materials at prices lower than those of the cluster's local suppliers.
E. Where clusters exist, a base of suppliers of materials needed by cluster constituents is likely to develop, allowing clusters to obtain their inputs locally.

2 
 2. It can be inferred that the author of the passage believes which of the following about the development of global markets and faster transportation?

A. These developments tend to nullify the competitive advantages that might be expected to result from the growth of local supplier bases near clusters.
B. These developments have little effect on the competitive success of businesses because the advent of clusters makes a company's location so crucial to its success.
C. These developments are advantageous to certain cluster constituents because they foster price competition between the local suppliers and distant suppliers of inputs needed by those constituents. 
D. These developments are crucial to certain cluster constituents' ability to achieve continuous innovation because they allow those constituents to recruit specialized workers from a global labor pool.
E. These developments have had a greater impact on companies' ability to compete than has been acknowledged by adherents to the conventional wisdom.

3 
 3. Which of the following does NOT provide an illustration of the advantages of clusters, as they are described in the passage?

A. Several manufacturers of shipping containers located near a natural harbor are readily able to hire qualified workers from a local labor pool.
B. Several furniture-making companies are located in a particular area where there are a number of textile mills that can offer a continuous supply of specialty fabrics.
C. Several restaurant-supply companies located in a particular area develop increasingly efficient production processes in response to competition among those companies.
D. Several companies that develop software are located near a university with a thriving computer-science department, and thus have ready access to a potential labor force with specialized training.
E. Advanced communications technology allows several geographically dispersed pharmaceutical companies to obtain continuously updated information on research advances at a particular laboratory.

4 
 4. According to the passage, the competitive success of companies in the past was

A. more independent of labor costs than is the success of companies today
B. partly determined by companies' ability to form alliances with related industries
C. mistakenly believed to depend on companies' access to certain kinds of local endowments
D. significantly affected by the prices companies had to pay for inputs
E. primarily determined by the efficiency with which companies were able to utilize the inputs available to them

MartyMurray · Accepted Answer

Explanation for Question 1

﻿1. The passage identifies each of the following as a phenomenon associated with cluster inputs EXCEPT:

To correctly answer this question, we eliminate the choices that present things that are mentioned in the passage and choose the choice that presents something not mentioned in the passage.

A. Clusters affect not only the demand for inputs but also the supply of inputs.

In the third paragraph, the passage says the following:

clusters increase not only the demand for specialized inputs but also the supply of them

Eliminate.

B. Clusters tend to lower the costs of recruiting qualified workers because the clusters encourage the development of specialized labor pools.

In the second paragraph, the passage says the following:

companies in thriving clusters can tap into an existing pool of specialized employees, thereby lowering their recruiting costs

This statement is not exactly the same as "clusters encourage the development of specialized labor pools," but it's probably close enough since it's logical that the reason "an existing pool of specialized employees" exists is that "clusters encourage the development of specialized labor pools."

So, we can keep this choice for now just in case it's correct, but we'll likely eliminate it.

C. Competition between local suppliers and distant suppliers of inputs to cluster constituents encourages the local suppliers to hold down prices.

In the third paragraph, the passage says the following:

But companies do have the alternative of obtaining many inputs from distant locations, encouraging local suppliers to offer competitive prices.

That statement means basically what this choice says since "companies do have the alternative of obtaining many inputs from distant locations" means that there is "competition between local suppliers and distant suppliers of inputs" and "encouraging local suppliers to offer competitive prices" means basically the same thing as "encourages the local suppliers to hold down prices."

Eliminate.

D. To penetrate a cluster market, distant suppliers of inputs needed by cluster constituents sometimes offer those materials at prices lower than those of the cluster's local suppliers.

What this choice says is plausible. At the same time, the only thing that the passage says about "distant suppliers" is "companies do have the alternative of obtaining many inputs from distant locations, encouraging local suppliers to offer competitive prices."

That information does not mean that distant suppliers do what this choice says.

Keep.

E. Where clusters exist, a base of suppliers of materials needed by cluster constituents is likely to develop, allowing clusters to obtain their inputs locally.

In the second paragraph, the passage says the following:

A well-developed cluster also provides an efficient means of obtaining other important inputs because it encourages the local development of a deep and specialized supplier base

While what this choice says about "encourages the local development of a deep and specialized supplier base" is not exactly the same as "a base of suppliers of materials needed by cluster constituents is likely to develop," this choice is sufficiently similar to what the passage says that we can eliminate it.

Eliminate.

Since (B) is close to what the passage says and (D) is not close to anything the passage says, we can safely eliminate (B) and choose (D) as the choice that presents something not mentioned in the passage.

The correct answer is (D).

Explanation for Question 2

2. It can be inferred that the author of the passage believes which of the following about the development of global markets and faster transportation?

A. These developments tend to nullify the competitive advantages that might be expected to result from the growth of local supplier bases near clusters.

Regarding local suppliers near clusters, we see that the passage says the following:

obtaining inputs locally instead of from distant suppliers lowers transaction costs in many cases

So, despite the development of global markets and faster transportation, it appears that competitive advantages related to lower transaction costs still result from the growth of local supplier bases near clusters. In other words, those developments do NOT tend to nullify those competitive advantages.

Eliminate.

B. These developments have little effect on the competitive success of businesses because the advent of clusters makes a company's location so crucial to its success.

We could easily be tempted to choose this trap choice since the passage does indicate that a company's location in a cluster can contribute to its success.

However, this choice is incorrect because it goes beyond what the passage says. After all, the passage does not go so far as to say that the development of global markets and faster transportation has "little effect on the competitive success of businesses."

In other words, while the success of companies in clusters indicates that global markets and faster transportation are not the only factors affecting the competitive success of businesses, those developments still could, and likely do, have a great effect, rather than little effect, on the competitive success of businesses.

Eliminate.

C. These developments are advantageous to certain cluster constituents because they foster price competition between the local suppliers and distant suppliers of inputs needed by those constituents.

Scanning the passage for "inputs," "local suppliers," and "distant suppliers," we find in the first paragraph the following related to "global markets and faster transportation":

any company can obtain these inputs efficiently from a distance through global markets

And we find the following in the third paragraph:

Competition for resources among cluster constituents might be expected to render those resources more scarce and therefore more expensive. But companies do have the alternative of obtaining many inputs from distant locations, encouraging local suppliers to offer competitive prices

In combination, those statements indicate that, because of the development of global markets and faster transportation, cluster companies can obtain many inputs from distant locations and that, therefore, local suppliers offer competitive prices.

That information supports this choice.

Keep.

D. These developments are crucial to certain cluster constituents' ability to achieve continuous innovation because they allow those constituents to recruit specialized workers from a global labor pool.

The passage discusses cluster companies recruiting "specialized labor," but not from a "global labor pool." Rather, the statements in the second paragraph imply that cluster companies can recruit from a local labor pool since the second paragraph says that universities in the cluster "provide specialized training" and since it's logical that cluster companies would gain the discussed labor-recruiting-related advantages only by recruiting from a local labor pool.

So, this choice is not supported by the passage.

Eliminate.

E. These developments have had a greater impact on companies' ability to compete than has been acknowledged by adherents to the conventional wisdom.

Regarding "conventional wisdom," the passage says the following in the first paragraph:

Now that companies can quickly obtain goods, information, and technology from around the world, conventional wisdom about how companies compete has been questioned. ... Now, it is argued availability of inputs locally is no longer a source of competitive advantage since any company can obtain these inputs efficiently from a distance through global markets.

It then says the following in the second paragraph:

But if location matters less, what accounts for geographic "clusters" of unusually competitive businesses in particular fields, such as the leather fashion industry in northern Italy?

We see that the passage indicates that, although "conventional wisdom" suggests that, because of the development of global markets and faster transportation, availability of inputs locally is no longer a source of competitive advantage, the reality is that there nevertheless exist "geographic "clusters" of unusually competitive businesses."

In other words, contrary to what this choice says, the passage suggest that, since factors related to location still affect competitive success, these developments have had a SMALLER impact on companies' ability to compete than has been acknowledged by adherents to the conventional wisdom.

Eliminate.

The correct answer is (C).

Explanation for Question 3

3. Which of the following does NOT provide an illustration of the advantages of clusters, as they are described in the passage?

This question is an Application question with a twist: the correct answer is the choice that does NOT provide an illustration of something in the passage.

So, to find the correct answer, we eliminate all the choices that illustrate advantages of clusters mentioned in the passage and choose the one that mentions something not described in the passage as an advantage of clusters.

A. Several manufacturers of shipping containers located near a natural harbor are readily able to hire qualified workers from a local labor pool.

Scanning the passage for "local labor pool," we find the following:

companies in thriving clusters can tap into  an existing pool of specialized employees , thereby lowering their recruiting costs

We see that this choice illustrates an advantage mentioned in the passage: a pool of specialized (in this case "qualified") workers.

Eliminate.

B. Several furniture-making companies are located in a particular area where there are a number of textile mills that can offer a continuous supply of specialty fabrics.

Since "a continuous supply of specialty fabrics" is a supply of inputs, we can scan the passage for "supply" and "inputs" to find the following:

A well-developed cluster also provides an efficient means of obtaining other important inputs because it encourages the local development of a deep and specialized supplier base; obtaining inputs locally instead of from distant suppliers lowers transaction costs in many cases.

We see that this choice illustrates an advantage mentioned in the passage: local specialized suppliers of inputs.

Eliminate

C. Several restaurant-supply companies located in a particular area develop increasingly efficient production processes in response to competition among those companies.

Scanning the passage for "competition," we find the following:

Competition among cluster constituents  then encourages the innovation that keeps constituent companies competitive in the larger business arena.

We see that this choice illustrates an advantage mentioned in the passage: competition among cluster companies encouraging innovation (in this case development of increasingly efficient production processes).

Eliminate.

D. Several companies that develop software are located near a university with a thriving computer-science department, and thus have ready access to a potential labor force with specialized training.

Scanning the passage for "university," we find the following:

Many clusters include other institutions- universities , think tanks, and trade associations- that provide specialized training , information, and technical support.

We see that this choice illustrates an advantage mentioned in the passage: universities providing specialized training.

Eliminate.

E. Advanced communications technology allows several geographically dispersed pharmaceutical companies to obtain continuously updated information on research advances at a particular laboratory.

The passage describes clusters in the following way:

Clusters are (geographic) concentrations of competitors in a given industry and other entities important to that industry

We see that what this choice describes is not an advantage of concentration. Rather, it's an advantage of "advanced communications technology" used by "geographically dispersed" companies, in other words, companies that are not in a concentration.

So, what this choice describes is not an advantage of clusters.

The correct answer is (E).

Explanation for Question 4

4. According to the passage, the competitive success of companies in the past was

In the passage, "the competitive success of companies in the past" is discussed briefly in the first paragraph. Scanning that paragraph for relevant information, we find the following:

A generation ago, the importance of location to companies' success was widely recognized: because success was determined largely by the cost of "inputs," such as raw materials and labor, locations with some important endowment such as a natural harbor or a supply of inexpensive labor could offer significant competitive advantages.

That information may be all we need for answering this question, but if it's not sufficient, we can go back to the first paragraph of the passage to see what else it says related to "companies in the past" that we can use somehow.

A. more independent of labor costs than is the success of companies today

Regarding "the competitive success of companies in the past," the passage says the following:

success was determined largely by the cost of "inputs," such as raw materials and labor

We see that the passage indicates that labor costs determined success of companies in the past, which is basically contrary to the idea that their competitive success was "more independent of labor costs."

Eliminate.

B. partly determined by companies' ability to form alliances with related industries

The passage says nothing about companies in the past forming alliances with related industries.

Eliminate.

C. mistakenly believed to depend on companies' access to certain kinds of local endowments

This choice is half right since the passage says the following about "the competitive success of companies in the past":

because success was determined largely by the cost of "inputs," such as raw materials and labor, locations with some important endowment such as a natural harbor or a supply of inexpensive labor could offer significant competitive advantages

So, we see that the passage does indicate that the competitive success of companies in the past is believed to depend on companies' access to local endowments.

However, this choice has a failure point in that the passage does not indicate that the competitive success of companies in the past was "mistakenly" believed to depend on companies' access to local endowments. Rather, the passage says that the competitive success of companies in the past did in fact depend on companies' access to local endowments.

Eliminate.

D. significantly affected by the prices companies had to pay for inputs

The passage says the following about "the competitive success of companies in the past":

success was determined largely by the cost of "inputs," such as raw materials and labor

We see that this choice says basically what the passage says using different words: "determined largely by" is basically the same as "significantly affected by," and "the cost of 'inputs' is basically the same as "the prices companies had to pay for inputs."

Keep

E. primarily determined by the efficiency with which companies were able to utilize the inputs available to them

The passage does not mention "efficiency" in the context of "companies in the past."

It does touch on "efficiency" in the following sentence:

Instead, competitive advantage today supposedly is gained through continuous innovation and the efficient use of inputs

At the same time, that sentence is about "competitive advantage today." So, it's not about companies in the past.

Eliminate.

The correct answer is (D).

manavsaraf001 · Answer

Can someone explain what does the first sentence of second paragraph means , specially the word "  less  "

"But if location matters  less,  what accounts for geographic "clusters" of unusually competitive businesses in particular fields"

MartyMurray · Answer

The first sentence of the second paragraph refers to the following in the first paragraph:

A generation ago,  the importance of location to companies' success was widely recognized  .... Now, ...  availability of inputs locally is no longer a source of competitive advantage

We see that that portion of the first paragraph indicates that "location matters less" than it did in the past.

Then, the sentence you're asking about in the second paragraph poses the following question: If location matters  less  than it did in the past, why are there still "clusters" of particularly competitive businesses in certain geographic locations?

tinbq · Answer

Hi  MartyMurray

I just wonder how to remember all the detail information to eliminate each choice 1 by 1 like you did. I couldn't remember all. So I usually have to make a choice between two options left. And if I want to refer back to the detail that can help, it normally takes more than the time required per question to navigate and reread the information. So my question is how you manage to answer this question in time. And what should I practice to enhance my performance and accurary?

MartyMurray · Answer

I usually go back to the passage for details like the ones needed for answering this question. I don't try to remember them.

To find the details I need quickly, I do two things:

- As I read the passage, I note where different types of details lie so that I can find them quickly if I need them.

- When looking for information, I look for keywords or synonyms of keywords from the question stem and answer choice.

Gemmie · Answer

﻿1. The passage identifies each of the following as a phenomenon associated with cluster inputs EXCEPT: 
 D. To penetrate a cluster market, distant suppliers of inputs needed by cluster constituents sometimes offer those materials at prices lower than those of the cluster's local suppliers.

The passage mentions that companies within a cluster can obtain inputs from distant locations if necessary. This suggests that distant suppliers might offer competitive prices to gain a foothold in the cluster market (established companies within the cluster might already have established relationships with local suppliers).

The passage, however, doesn't explicitly state that this competition between local and distant suppliers directly forces local suppliers to lower their prices in general. It focuses more on the overall competitive environment within the cluster that benefits from various factors, including competition among suppliers.

2. It can be inferred that the author of the passage believes which of the following about the development of global markets and faster transportation? 
 C. These developments are advantageous to certain cluster constituents because they foster price competition between the local suppliers and distant suppliers of inputs needed by those constituents.

The passage acknowledges the rise of global markets and faster transportation, initially suggesting they might diminish the role of location (conventional wisdom).

However, the focus then shifts to clusters and how they can still thrive despite these developments.

The passage highlights an implied benefit of global market and faster transportation: offering an alternative to local supply, which motivates the local suppliers in the clusters to keep their prices competitive.

3. Which of the following does NOT provide an illustration of the advantages of clusters, as they are described in the passage? 
 E. Advanced communications technology allows several geographically dispersed pharmaceutical companies to obtain continuously updated information on research advances at a particular laboratory.

Clusters, as described in the passage, are geographically concentrated groups of companies and related entities.

The benefits of clusters arise from this proximity, fostering collaboration, knowledge sharing, and a specialized supply chain.

Option E describes geographically dispersed companies benefiting from communication technology, not the advantages of physical proximity within a cluster.

4. According to the passage, the competitive success of companies in the past was 
 D. significantly affected by the prices companies had to pay for inputs

"the importance of location to companies' success was widely recognized: because success was determined largely by the cost of "inputs,""

MalachiKeti · Answer

MartyMurray  I chose A for Q1 because the passage mentions only for specialised inputs and I didn't choose D because the reason local suppliers have to give at competitive prices is because we distant supppliers would be able to offer at lower..isn't it extension of C?  AjiteshArun  your views?

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