Vertical Integration Strategies

Vertical integration (VI) is used strategically to gain control over the industry’s value chain. The important issue to consider is, whether the company participates in one activity (one industry) or many activities (many industries).

For example, a company may choose that it only manufactures its products or would get involved in retailing and after-sales services too. Two issues have to be considered before integration −

●      Costs − An organization must integrate vertically when costs producing inside the company are less than the costs of availing that product in the market.

●      Scope of the firm − It is necessary to think over the fact, whether moving into new industries would not dilute its current competencies. New activities are often harder to manage and control. These factors contribute to a decision if a company will pursue none, partial or full VI.

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