Disadvantages Of Vertical Integration

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Vertical Integration When we say that an organization is engaged in vertical integration, we imply that the organization is in charge of two interweaved steps of the manufacturing or value chain process. The manufacturing or quality chain procedure is the series of changes that raw materials undertake until they are changed into finished product. Sometimes this series is not in only one chain, e.g. some products are the resultant of two distinctive middle products. Going by this we can have three potential outcomes of vertical combination: (a) Backward or upstream integration; (b) Forward or downstream integration; (c) Lateral integration Practically it is difficult to distinguish lateral and backward integration; many research material…show more content…
For example, if an organization has a contract with a supplier for buying a maximum possible amount of a product, but the business scenario changes and that organisation needs more amount than the earlier agreed fixed amount for a certain period of time. It has to negotiate with the supplier again to buy at a relatively higher amount, but it depends on supplier to deliver more than what is agreed previously. Now, if the organisation is producing that product itself, then just production needs to be increased. Now it has the control to increase or reduce production at will, that’s why supply chain is much more coordinated. In addition to this another benefit of vertical integration, is that your organization will be able to invest in highly specialized assets. Vertical integration gives the opportunity to go even further. With specialized assets and having more control over inputs, by implementing this, it is possible to differentiate from competitors, and gain competitive advantage. This is one of the ways to increase your market share, which will eventually lead to increased…show more content…
One way by which this problem can be overtaken is to make your own investment that means your organization proceeded to vertical integrate that specific task. If the consecutive activities of the value chain are strategically similar and if you integrate them vertically, that would probably lead to a decrease in costs. How vertical integration can be developed: Every organization should be aware of the fact they can’t get vertically integrated in a single go. Generally one step of the value chain is integrated at a time, then other steps if the conditions are proper. Before integrating it is imperative to study the condition in which your organisation is operating, and who all are your direct suppliers or clients. What are the issues in continuing to operate like this, and what would be the possible advantages of vertical integration to your organization? It’s important to assess the investment which is required for undertaking that action, and how long it will take to achieve intended results. If an organization can answers all these questions then vertical integration is
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