2. If an incumbent firm in an industry increases the modularity of their product's architecture, they will always choose to outsource one of the resulting modules. True or False? Explain why? (Wor...
2. If an incumbent firm in an industry increases the modularity of their product's architecture, they will always choose to outsource one of the resulting modules. True or False? Explain why? (Word Count: 150)
Homework Answers
Correct Answer:
True
When modularity of the product's architecture increases, it means that product by design, can be broken down into different parts as modules and each module can be separately produced. In this scenario, firm has limited ability, resource and capacity to produce the new modules in the short run and would like to find some other producers that can produce it on their own behalf. It seems to be logical as well, because capital investment is fixed in the short run and firm cannot bring in capital to enhance the capabilities and produce all modules on its own. So, the incumbent firm will opt to go for the outsourcing for some of the modules that will be of non-core nature. Remaining core modules will be produced at the existing setup. It will make the firm to do the efficient utilization of resources. It makes the statement to be true.
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