Glossary - Vertical Integration
Vertical integration is a strategy where a company expands its business operations into different steps on the same production path, such as when a manufacturer owns its supplier and/or distributor. This can enable the company to reduce costs, improve efficiencies, control quality, and ensure a smoother supply chain, but it can also involve significant investment and management complexity.
Also known as
- Vertical Merger
- Vertical Acquisition
Use cases examples
- Mergers and Acquisitions Agreement: The acquisition of the supplier by the manufacturing company as described in this agreement constitutes a vertical integration that aims to secure the supply chain and reduce production costs.
- Annual Report: Our strategic initiative to vertically integrate by acquiring a chain of retail outlets has significantly improved our market distribution efficiency and customer reach.
Considerations for investors
- Consider the financial stability and operational capacity of the company to manage the increased scope of business post-integration.
- Analyze how vertical integration affects the company's competitive advantage and market positioning in the long term.
Considerations for founders
- Assess whether vertical integration aligns with the company's core competencies and strategic goals.
- Evaluate the potential impact on the company's agility and ability to innovate, as vertical integration may lock the company into its existing technologies and markets.
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