What is Vertical Integration?

Vertical integration is a method to increase or decrease the company's level of control over the allocation of its inputs and outputs, that is, the degree to which the company controls the allocation of its production inputs, products, or services.

Vertical integration

Vertical integration is a method to increase or decrease the company's level of control over the allocation of its inputs and outputs, that is, the degree to which the company controls the allocation of its production inputs, products, or services.

Chinese name

Michael Porter's Value Chain model [

There are two types of vertical integration:

Vertical integration has a long history, but its strategic motivations are different in each period. In the 19th century, the company used vertical integration to expand its operations. In the middle of the 20th century, the use of vertical integration was mainly reflected in stabilizing the supply of key production raw materials. In some specific cases, it is also applied to

Vertical integration is often used in the following situations:

During the development of a company's strategy, vertical integration is often considered as a strategic option. For example, in

When considering whether to adopt a vertical integration strategy and to what extent, you need to consider the following:

Is there an Economies of Scope that enable companies to control input and output cheaply?

Are there market external factors that enable companies to efficiently control inputs and outputs?

Is it necessary to pursue monopoly power?

Advantages of vertical integration

Economies of scale.

Category economy.

Reduce costs.

Competitive.

Reduce the threat from suppliers or customers.

High control of the complete value chain.

Limitations of vertical integration. Disadvantage

In reality, there is no fully integrated or completely non-integrated company. Therefore, this question cannot make two extreme choices. The point of the question should be how to optimize the degree of vertical integration.

The degree of vertical integration is difficult to obtain by quantitative means.

When vertical integration helps a company solve a problem, it can cause a series of other problems. Compare Core Competence.

The balance between new and old businesses after integration is difficult to grasp.

The assumption of vertical integration. condition:

Companies must expand and extend their role in the supply chain.