Outsourcing Risks Include Breaches in Intellectual Property, Provider Shirking, and Opportunistic

question 47

Multiple Choice

Outsourcing risks include breaches in intellectual property, provider shirking, and opportunistic renegotiation. The combination of contractual incompleteness, asset specificity, and uncertainty gives rise to these risks when firms pursue external sourcing. Outsourcing organizations must have a clear _____________________.

• A) legally binding contract
• B) understanding of the contract
• C) understanding of true supplier intentions
• D) definition of supplier roles and responsibilities
• E) understanding of the supplier's role and responsibilities

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Definitions:

Return on Total Assets

measures a company's efficiency in using its assets to generate profit, calculated by dividing net income by total assets.

Total Assets

The sum of all current and non-current assets owned by a company, including cash, inventory, property, and equipment.

Gross Margin Percentage

A financial metric that represents the gross margin as a percentage of total sales revenue, indicating the efficiency of a company in producing and selling goods.

Price-Earnings Ratio

A valuation metric for stocks, calculated by dividing the market price of a stock by its earnings per share, indicating the dollar amount an investor can expect to invest in a company to receive one dollar of that company’s earnings.