GMAT Reading Comprehension
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Source: OG10th
Level: 3
Modern manufacturers, who need reliable sources of materials and technologically advancedcomponents to operate profitably, face an increasingly difficult choice between owning theproducers of these items (a practice known as backward integration) and buying from independentproducers. Manufacturers who integrate may reap short-term rewards, but they often restrict theirfuture capacity for innovative product development.
Backward integration removes the need for some purchasing and marketing functions, centralizersoverhead, and permits manufacturers to eliminate duplicated efforts in research and development.Where components are commodities (ferrous metals or petroleum, for example), backwardintegration almost certainly boosts profits. Nevertheless, because product innovation meansadopting 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.
A company that decides to make rather than buy important parts can lock itself into an outdatedtechnology. Independent suppliers may be unwilling to share innovations with assemblers withwhom they are competing. Moreover, when an assembler sets out to master the technology ofproducing advanced components, the resulting demands on its resources may compromise itsability to assemble these components successfully into end products. Long-term contracts withsuppliers can achieve many of the same cost benefits as backward integration withoutcompromising a company's ability to innovate.
However, moving away from backward integration is not a complete solution either. Developinginnovative technologies requires independent suppliers of components to invest huge sums inresearch and development. The resulting low profit margins on the sale of components threaten thelong-term financial stability of these firms. Because the ability of end-product assemblers torespond to market opportunities depends heavily on suppliers of components, assemblers are oftenforced to integrate by purchasing the suppliers of components just to keep their suppliers inbusiness.
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.