Vertical Integration
- Topics:
- Strategy Formulation
- Tags:
- Cost Aspect,
- Integration,
- Quick MBA.com
- Source:
- Quick MBA.com
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Overview: The degree to which a firm owns its upstream suppliers and its downstream buyers is referred to as vertical integration because it can have a significant impact on a business unit's position in its industry with respect to cost, differentiation, and other strategic issues, the vertical scope of the firm is an important consideration in corporate strategy. Expansion of activities downstream is referred to as forward integration and expansion upstream is referred to as backward integration. The concept of vertical integration can be visualized using the value chain. Two issues that should be considered when deciding whether to vertically integrate are cost and control. The cost aspect depends on the cost of market transactions between firms versus the cost of administering the same activities internally within a single firm. The second issue is the impact of asset control, which can impact barriers to entry and which can assure cooperation of key value-adding players. Besides this, there are alternatives to vertical integration that may provide some of the same benefits with fewer drawbacks. All these have been discussed in brief in the article.
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Format: HTML | Date: Jan 2003 | Pages: 1
