Answered! In a five-paragraph written essay, using APA style, explain successful cases of vertical integration in companies and…

In a five-paragraph written essay, using APA style, explain successful cases of vertical integration in companies and analyze its advantages and disadvantages.

Expert Answer

Vertical integration is the expansion of a firm or a business into different new steps along its production path or extension of the supply chain. The vertical integration may be backwards, acquiring a new business bringing the existing business close to the roots of the business and taking it away one step from the customer or a forward integration, bringing it close to the customers. Vertical integration is contrasted from the horizontal integration, as in the horizontal integration the company acquires a business same as its present business to achieve higher market share and to reduce the competition.

A vertically integrated produce company, for example, might hold a farm, a produce distribution business and a green grocery. The farm’s acquisition of a distributorship of the produce would constitute forward integration. Whereas, the farm’s acquisition of a company making fertilizer or compost for it, is an example of backward integration.

Backward integration dictates that one company controls the end product as well as its component parts.

As an example of successful forward vertical integration, Google recently acquired mobile-device maker Motorola Mobility and will soon manufacture smart phones and television set-top boxes. Another example is Amazon’s Kindle Fire tablet represents its bridge between hardware and e-commerce.

Oracle bought Sun Microsystems and now champions engineered systems (integrated hardware-and-software devices). And even long-standing software giant Microsoft now makes hardware for its Xbox gaming system.

Reliance Industry from India started with the manufacturing of polyester clothing and vertically expanded with backward integration in setting up a plant for production of polyester granules which are the raw materials for polyester yarn and growing further backwards today they have one of the largest oil refinery, in the world.

There are distinct advantages in the growth of business through vertical integration, both backwards and forwards as a successful vertical integration leads to cost advantages through cost reduction and efficiency improvement of the supply chain. It helps business to control or reduce the effect of the market environment factors to some extent.

The disadvantages are that the capital available to maneuver the business for any market challenge gets reduced. One may acquire a business away from its core competence and may lose effective control on the overall business. The vertical integration may lead to dilution of the main business also.

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