QuaDron competes in the market for military and commercial drones. The company manufactures its own high-resolution cameras, which are smaller and more powerful than those of any other competitor. The QuaDron cameras are equipped with a proprietary battery manufactured on-site that lasts 150% longer than any other competitor’s battery. When developing the proprietary battery, QuaDron decided to manufacturer the battery in-house out of fear of reverse engineering from the company it outsourced the battery manufacturing to, a scenario that was especially problematic considering an expected significant increase in demand. Additionally, QuaDron sells its products and services through its own direct sales force to ensure that its representatives highlight the longer battery life of QuaDron’s units. QUESTIONS Q I.1. Discuss shortly in theory the three main explanations for vertical integration. Which of the three is most consistent with QuaDron’s decision to manufacture the battery in-house? Q I.2. Discuss the effects of QuaDron’s development of the new battery technology on the vertical integration strategy in terms of reducing/increasing its rarity and imitability. Q I.3. Assume that QuaDron were to expand into selling its drones through company-owned retail stores. What kind of integration would it be? Q I.4. What do you think is the most appropriate organizational structure for QuaDron, considering the changes in strategy? If QuaDron’s CEO decided to use budgets as a management control but wanted to make sure that the managers did not become too focused on the short term, what should she/he do (use an open process in developing budgets or determine budgets for her managers and allow them to focus only on meeting the budgets, use quantitative and/or qualitative evaluations of performance, …)? PART II BACKGROUND At the beginning of 2010, THREED competed exclusively in the manufacturing of 3D-printers industry and generated approximately 97% of its revenue from the sales of 3D-printers and the rest from sales of other accessories. Of the total of these revenues, 50% was from sales in the U.S., 30% was from sales in Europe, 15% was from sales in Asia and 5% was from other areas. In October 2010, THREED entered the 3D-pen manufacturing industry by introducing a new 3D-pen known as PenDora. While a 3D printer is precise and most appropriate for prototyping parts, a 3D-pen supports fluidity and creativity and doesn’t require a fully modelled 3D file to start. In developing and selling the PenDora, THREED was able to use many of the same R&D facilities, suppliers, production facilities, and distribution and sales outlets as it did for the 3D-printers. By 2013, the THREED’s PenDora and accessories accounted for 35% of THREED’ revenues. QUESTIONS Q II.1. Describe in theory different types of corporate diversification. What diversification type best characterizes THREED in 2010 and why? Answer the same for year 2013. If THREED were looking to getting into the business of making laser cutters, what would its diversification be called? Q II.2. Which type of economies of scope is THREED experiencing between its units? Now assuming that one of the reasons that THREED entered into the 3D-pen industry was to offset weakness in the 3D-printers industry (when the 3D-printers industry was weak, the 3D-pen industry was strong, and vice versa), THREED would be pursuing which economy of scope? Q II.3. Describe shortly the concepts of multipoint competition and predatory pricing. If, when THREED introduced its PenDora in 2010, the company used its profits in the 3D-printer industry to subsidize its operations in the 3D-pen industry and used this subsidy to sell the PenDora for a price that was less than the cost of producing and selling the 3D-pens, this would be an example of which of the two? Q II.4. Assume that in 2010 THREED did not want to employ a diversification strategy to enter the 3D-pen industry. What could it use as a substitute for diversification? PART III. TECHNICAL GUIDE Between 3 and 4 pages single spaced, 1” margins all around, of 12 point Times New Roman font to answer the questions (between 1200 and 1600 words). There is no need to retype the question in your assignment. The questions should be answered in an ESSAY format; bring arguments to support your answers.