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Advantages and Drawbacks of Vertical Integration

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Last updated 18 Mar 2023

This revision video looks at examples of forward and backward vertical integration and considers some of the potential advantages and drawbacks.

Advantages and Drawbacks of Vertical Integration

Vertical integration is a strategy in which a company expands its operations by acquiring other companies that are involved in different stages of the same supply chain. Here are five real-world examples of businesses that have grown through vertical integration:

  1. Amazon: Amazon has expanded its operations through vertical integration by acquiring companies involved in different stages of the e-commerce supply chain. For instance, Amazon has acquired Whole Foods to enter the grocery business, and it has also acquired logistics companies like Kiva Systems and Colis Prive to improve its delivery capabilities.
  2. Ford Motor Company: Ford has practiced vertical integration by owning its own iron mines, steel mills, and rubber plantations. By owning these suppliers, Ford could control the quality and cost of the materials used in its vehicles and improve efficiency in its manufacturing process.
  3. Walt Disney Company: Disney has grown through vertical integration by acquiring companies that create content for its various entertainment platforms. For instance, Disney acquired Pixar, Marvel, and Lucasfilm to bolster its movie and TV offerings, and it has also acquired companies involved in theme park operations and merchandise production.
  4. Apple: Apple has used vertical integration to create a seamless user experience for its products. For instance, Apple designs its own processors and software, which are then used in its iPhones, iPads, and other devices. Apple also operates its own retail stores, which allow it to control the customer experience and increase brand loyalty.
  5. Tesla: Tesla has grown through vertical integration by producing many of the components used in its electric vehicles in-house, including batteries, motors, and drivetrains. This allows Tesla to maintain control over the quality of its products and to innovate more quickly than if it relied on external suppliers.

These are just a few examples of businesses that have successfully grown through vertical integration by expanding their operations into different stages of the supply chain.

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