Question

TerraLoc competes in the market for global positioning devices and services. The company manufactures its own GPS units, which are smaller than those of any other competitor and include a proprietary battery that lasts 200% longer than any other competitor's battery and that TerraLoc manufacturers on-site. TerraLoc also has developed proprietary software that is much faster and more precise than that of any competitor. When developing the proprietary battery, TerraLoc decided to manufacturer the battery in-house to reduce the possibility that the company it outsourced the battery manufacturing to might reverse engineer the battery and sell a similar product to competitors. This possibility was especially troubling given that the company expected a significant increase in demand due to the improved battery life. Additionally, TerraLoc sells its products and services through its own direct sales force to ensure that its representatives highlight the longer battery life of TerraLoc's units.

Referring to the TerraLoc Description,

true or false: The fact that TerraLoc has also vertically integrated into direct sales is an important factor in TerraLoc’s decision on battery production.

Answer 1

True: Firsty, TerraLoc has not gone into outsourcing for battery production. Rather, it has kind of done backward integration to develop in-house battery manufacturing.

Coupled with this, it has done forward integration by having direct sales force and removed any intermediate dealer that comes in between the manufacturer and customer. There are twin benefits:

• Training company owned salesforce regarding the USP will be much easier compared to training third-party salesforce. Thus, Salesforce armed with proper sales pitch could get closer to customers and convert leads.
• Increased revenue due to increased productivity. The company could get real-time data on market and industry insights through salesforce and plan for further R&D breakthroughs.