Buy

'Buy' refers to a companies decision to manufacture or develop (parts of) a product externally. Reasons favoring 'Buy' decisions are:

• High economies of scale
  • If an external party can produce the asset for multiple consumers in higher volumes than the firm itself, that party is in a much better position to profit from economies of scale
• High capital requirements
  • If the production of a certain good requires a high upfront investment, such as a specific production plant. It may be helpful to find an external partner who already made that investment.
• Specialized know-how
  • Due to Learning effects a company with specialized know how will be able to produce a certain good or service cheaper at higher quality.
• Higher efficiency of the open market
  • External parties are forced to be more efficient as they are continuously under competitive pressure.