Vertical integration refers to the process where a company expands its operations into different stages of production within the same industry. Here's a detailed breakdown:
* Definition of Vertical Integration: This involves a company controlling multiple stages of the supply chain, from raw materials to the finished product.
* Examples of Vertical Integration:
* Producing Components Internally: This is a classic example where a company manufactures the components or raw materials it needs for its products, rather than relying on external suppliers.
This enhances control over the production process, quality, and costs.
* Backward Integration: When a company takes over suppliers to control the raw material or component supply.
* Forward Integration: When a company takes over distributors or retailers to control the distribution of its products.
* Benefits of Vertical Integration: Improved coordination, increased control over the supply chain, reduced dependency on suppliers, potential cost savings, and better quality control.
References
* Porter, M. E. (1985). Competitive Advantage: Creating and Sustaining Superior Performance. Free Press.
* Harrigan, K. R. (1984). Formulating Vertical Integration Strategies. Academy of Management Review,
9(4), 638-652.