What is Vertical Integration?
Vertical integration is a strategy used by businesses to gain control over their supplies, production and distribution. It occurs when a company takes control of the entire production process, from the raw materials to the finished product, by owning or controlling all of the entities involved in the process. This approach allows a company to increase its efficiency and profits by reducing the costs associated with outsourcing different stages of production.
Benefits of Vertical Integration
Vertical integration has the potential to provide a number of benefits for businesses, including:
- Reduced costs – By controlling the entire production process, businesses can reduce costs by eliminating the need to purchase supplies and services from outside sources.
- Increased control – By controlling the entire production process, businesses can ensure that the quality of their products is maintained, as well as ensuring that the production process is efficient.
- Reduced risk – By controlling the entire production process, businesses can reduce their risk of being affected by external factors, such as changes in the market or changes in supplier’s prices.
- Greater flexibility – By controlling the entire production process, businesses can be more flexible in responding to changes in the market and customer demands.
Examples of Vertical Integration
Vertical integration is a common strategy used by businesses in a range of different industries. Some examples of vertical integration include:
- Apple Inc. – Apple Inc. controls the entire production process of its products, from the raw materials to the finished product. It also controls the retail stores and online stores where its products are sold.
- McDonald’s – McDonald’s owns the restaurants where its food is served, but it also owns the farms that produce the ingredients used in its food.
- Walmart – Walmart owns the stores where its products are sold, as well as the factories that produce the products.
Conclusion
Vertical integration is a strategy used by businesses to gain control over the entire production process, from the raw materials to the finished product. The benefits of this approach include reduced costs, increased control, reduced risk and greater flexibility. This strategy is commonly used by businesses in a range of different industries, with some notable examples including Apple Inc., McDonald’s and Walmart.
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