Chapter 7 - Vertical Integration

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7 Terms

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Vertical Integration

A corporate strategy that involves controlling multiple stages of the production or supply chain.

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Value Chain Economies

Synergies created by a focal firm that can lead to cost reductions and revenue enhancements through coordination of value-creating activities.

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Backward Vertical Integration

A type of vertical integration where a company expands upstream in the supply chain, gaining control over its suppliers.

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Forward Vertical Integration

A type of vertical integration where a company expands downstream in the supply chain, gaining control over distribution or retail.

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Market vs. Integrated Economic Exchange

A comparison of conducting economic exchange through open markets versus integrated hierarchies to maximize value.

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Imitability of Vertical Integration

The ease or difficulty with which competitors can replicate a firm's vertical integration strategy.

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Three Value Considerations for Vertical Integration

  1. Leverage capabilities

  2. Exploit Flexibility

  3. Manage Opportunism