Running Header: Vertical Integration 1

Vertical Integration
By

Course
Professor
University
11/04/2021
Vertical Integration 2

Vertical Integration is Dead, or is it?

Vertical integration is a common strategy used by businesses that allow them to
control different operations like controlling their suppliers, distributors, and retailers. Many
businesses and scholars argue against this method as it requires a lot of capital investment
from businesses suggesting an easier alternative which is outsourcing these operations.
Businesses having to diversify and invest in different operations also seems futile to scholars
as businesses should rather focus on their expertise and leave extra roles to others to
maximize profits.
Businesses are tasked with different economic and technological needs in different
parts of their supply chain which require different employees and a completely different style
of management and culture. These differing departments increase the complexity of the firm
and put further stress on managers as they need to maintain all these sectors and integrate
them to make a work environment to successfully run the business.
Traditionally, vertical integration has been used by many companies due to strategic
considerations which involve aspects of power and positioning, and for efficiency
considerations that involve issues of governance and transaction cost arguments…
Vertical integration is still used by many companies today for several reasons other
than strategic efficiency considerations. One motive of continuing vertical integration is value
migration. This is common in the manufacturing sector because of the high penetration rates
and higher product life has compared to sales which have led to a shift from manufacturing to
the maintenance of existing products. The need for technical teams and more expertise in the
growing service fields has meant companies use vertical integration to ensure company
growth and survival in their pursuit for value-added. Another reason is differentiation as
companies (especially tech companies) can no longer outdo the competition with the products
they offer that work at ultimate abilities and need to look for other strategies to outdo the
competition. To outdo the competition, companies may provide other services and support to
customers thus encouraging vertical integration. Branding can also be an effective
differentiation plan to allow a company to venture into other markets and retain their
customers all around. Clients could also encourage companies to use vertical integration
systems to supply them with a wider range of products and services which has also been
boosted by the option of companies to outsource some parts of their work. Businesses have
also had to expand activities and provide clients with more services to be able to retain them
as they have growing demands of their own. Another argument for vertical integration is the
improvement in synergies and cooperation between different departments and the power to
help and be closely involved with clients given the extra services provided. However, much
of these traditional motives are being eroded given new trends in the market and the influence
of globalization on business operations and entry into markets. Thus, new studies need to be
conducted to understand the use of vertical integration in contemporary businesses.
Vertical integration improves the customer interface, therefore, giving companies a
chance to learn the growing trends and consumer preferences. This can also enhance
entrepreneurial alertness by receiving more accurate information and knowledge which helps
one make better decisions. Innovation is another advantage of vertical integration and close
contact with customers as their needs can easily be understood and met.
In an age of mass customization which is taking over mass production, vertical
integration has maintained its popularity in various industries. As much as outsourcing is a
popular system used by companies, the business goals, operations, and client/ customer
relations determine whether vertical integration can work for them or not.