EOTO 2 Vertical Integration Blog #9

Vertical Integration is not a term I heard of prior to this presentation and research, so what exactly is it? 

    The dictionary definition is "the combination in one company of two or more stages of production normally operated by separate companies." Vertical Integration is when a company operates all forms of production of a product. Lets take a car company as an example. Typically they would own their dealership and sell their cars while buying steel, wires, tires, all that other stuff that a car would need and then put it together and sell it. If this company was vertically integrated with the rest of the process, they would own the steel mills, the mines where they would get their iron, the factory where they make the parts along with the dealership, the list goes on. Now, although the example I gave includes most of the process of making a car and selling it, vertical integration does not need to include everything, as stated per the dictionary definition.

Is Vertical Integration good?

       Depends on who you ask. For a company, vertical integration can be very beneficial when it is done correctly and effectively. Getting rid of the price for having to buy goods at a mark up from another company can be a very cost effective strategy, and therefor keep all good collected within the company. If done incorrectly, sometimes it can cost a company, well, their company. It gets really expensive when you have to buy out each portion of the process for your good or service, and being at a deficit after buying all these other companies can be pretty detrimental.

    But with all these other companies being owned by one company, it does end up leading to lower prices for the consumer, or at least it can, as the company does not have to spend more money on buying its resources or parts from others, so you wont have to worry as much about their prices going up as they can afford to be lower than their competitors.

So the overall answer is more yes than it is no, as the decrease in cost and increase in quality of their good due to them having direct access to the resources and more money to make sure their product is better, along with the added benefit of lower transportation costs and lower prices for the consumer.