Certified Production & Operations Manager (POM) Practice Exam

In the context of outsourcing, which term describes the risk of a competitor emerging from a contractor?

1. Market cannibalism

2. Competitive dilution

3. Future competition

4. Supplier substitution

The correct answer is: Future competition

The term that best describes the risk of a competitor emerging from a contractor is future competition. When a company outsources certain functions or operations to a contractor, it often grants that contractor access to sensitive business information, processes, and technologies that could enable them to become a direct competitor in the future. This risk is particularly acute in industries where the barriers to entry are low, making it easier for a contractor to leverage the knowledge and capabilities gained through their partnership to start their own competitive operations. This concept underscores the need for businesses to carefully consider their outsourcing strategies and the potential for future competition to arise from their contractors. Establishing clear terms in contracts, non-compete clauses, and maintaining confidentiality can help mitigate this risk. Understanding this dynamic is crucial for production and operations managers as they navigate the complex landscape of outsourcing and partner relationships.