Phoenix Guitars is interested in pursuing backward integration to take greater ownership of the extraction of raw materials and production of components used in its signature line of guitars. Although this approach would lower the overall cost of producing a guitar, the costs associated with producing electronic pickups for sound amplification are far greater than those associated with sourcing pickups from a reliable supplier. Which of the following approaches is likely to produce superior results?
A) Invest in vertical integration despite the cost of producing pickups.
B) Abandon the idea of vertical integration entirely.
C) Pursue taper integration.
D) Introduce a budget line of guitars to diversify the firm's offerings.

Question

Quizplus · Accepted Answer

Taper integration is a way of orchestrating value activities in which a firm is backwardly integrated, but it also relies on outside-market firms for some of its supplies, and/or is forwardly integrated but also relies on outside-market firms for some if its distribution. By pursuing a taper integration strategy, Phoenix Guitars could take ownership of most of the upstream value chain activities while sourcing pickups from a lower-cost supplier. Firms that pursue taper integration achieve superior performance in both innovation and financial performance when compared with firms that rely more on vertical integration or strategic outsourcing.

Phoenix Guitars Is Interested in Pursuing Backward Integration to Take