Definition of Vertical integration:
The combination in one company of two or more stages of production normally operated by separate companies.
Vertical integration is a strategy whereby a company owns or controls its suppliers, distributors, or retail locations to control its value or supply chain. Vertical integration benefits companies by allowing them to control the process, reduce costs, and improve efficiencies. However, vertical integration has its disadvantages, including the significant amounts of capital investment required.
Merger of companies at different stages of production and/or distribution in the same industry.
When a company acquires its input supplier it is called backward integration. When it acquires companies in its distribution chain it is called forward integration. For example, a vertically integrated oil company may end up owning oilfields, refineries, tankers, trucks, and gas (petrol) filling stations. Also called vertical merger. See also horizontal integration.
Netflix is a prime example of vertical integration whereby the company started as a DVD rental company supplying film and TV content. The company's executive management realized they could generate more revenue by shifting to original content creation. Today, Netflix uses its distribution model to promote their original content alongside films from major studios.
How to use Vertical integration in a sentence?
- Steve was not content merely to make money in his business, he wanted to acquire his distributor as well, and increase his profits through vertical integration .
- Vertical integration is when a company owns or controls its suppliers, distributors, or retail locations to control its value or supply chain.
- The two companies are closely related in terms of their industry and have been competing bitterly for many years, so both sides might possibly be amenable to a vertical integration strategy that eliminate the rivalry and combine their forces.
- Finally, size of firm, vertical integration, diversification, and form of organization were found to be important direct influences.
- Backward integration is when a company expands backward on the production path into manufacturing.
- Forward integration is when companies control the direct distribution or supply of their products. .
- Vertical integration benefits companies by allowing them to control the process, reduce costs, and improve efficiencies.
- During a board meeting at Discover ™, most of the board members agreed that the corporation should consider vertical integration with the third parties participating in making the plastic cards.
Meaning of Vertical integration & Vertical integration Definition