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Samsung Electronics: A Traditional Model Of Opical Integration In The Global Business

737 Words3 Pages

Due to risk and cost involved in transacting with many business partners, most firms usually choose to vertically integrate to achieve transactions cost economies – that is to mean, they try to virtually minimize the involve of third parties in the supply chain simply by taking up the challenge to do most of the things themselves. At least by doing so, they reduce the risks and all the difficulties associated with enforcing contracts with all these business partners and even avoid the challenges of ensuring that the raw materials, like the components parts and or services meet the quality and required level standards. In integrating vertically, it will also reduce the risks of asymmetric information and opportunistic behavior aimed against the firm. This traditional model of vertical integration, however, assumes two things: either that vertical segments are well defined, or that firms operate in existing markets. The problem with these assumptions is that they rarely exist in the real world today. Looking at Samsung Electronics for example, we know it is an electronics and information tech-nology giant based in South Korea. The company “operates using a vertical integration model which leverages all aspects of the manufacturing process from raw materials to electronics components to fully-assembled products”(Eisenberger, Li, Mitrenko, Vajrapu and Xu, 2003). Samsung Electronics is also one of the world’s largest suppliers of electronic components, and a top supplier of Sony,

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