Knowra Vertical integration Vertical integration Vertical integration is a business strategy in which one company owns or controls multiple stages of producing and distributing a product or service. It brings activities at different points in a supply chain under common control.
Supply chain : A network of organizations and activities that moves goods or services from inputs to end users. Vertical integration brings multiple stages of this network under one company's control.
Backward integration : The acquisition or control of earlier stages of production, such as raw-material supply or component manufacturing. It is the upstream form of vertical integration, extending control toward inputs.
Horizontal integration : A strategy in which a company combines with or acquires businesses at the same stage of production. Unlike vertical integration, it expands control across competitors or peers at one stage.
Economies of scale : Cost advantages that arise when increased output lowers average cost. Consolidating production stages may increase throughput enough to lower unit costs.
Transaction cost economics : An approach explaining how firms choose between markets, contracts, and internal organization by comparing their costs. It explains why a company may internalize stages when market contracting is costly.
Forward integration : The acquisition or control of later stages, such as distribution, retail, or after-sales service. It is the downstream form, extending control toward customers.
Outsourcing : The practice of contracting an external organization to perform activities previously or otherwise done within a firm. It shifts activities outside the company, the opposite boundary choice from integration.
Economies of scope : Cost savings from producing different products or services together rather than separately. Shared assets across integrated stages can support several products or services.
Make-or-buy decision : A firm's choice between producing an input internally and purchasing it from an outside supplier. Each integration decision asks whether to bring a stage inside or keep buying externally.
Vertical merger : A merger between companies operating at different stages of the same supply chain. It is a common way to obtain control of a supplier or distributor.
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