Vertical Integration Advantages

A vertical integration strategy is one in which one company operates at more than one level of the distribution channel.

1. A main advantage sought by companies that get into vertical integration is more control over the value chain. When retailers decide to acquire or develop a manufacturing business, they get more control over the production part of the distribution process.

2. Some economies of scale such as risk bearing economies, financial economies. Lower costs could lead to lower prices for consumers.

3. Firm not subject to losing control of supply. e.g. they can’t be held to ransom by suppliers demanding higher price at critical time.

4. Maybe some overlap of technology and expertise. e.g. A bookshop may know what kind of books sell well so they can develop the right kind of paper and attractive design.

5. Arguably the splitting up of the rail network created more confusion and less incentive to look after the track. It would make more sense for train operating companies to be responsible for the track as they would have greater interest in maintaining it satisfactorily.

6. Vertical integration also typically offers significantly ability to control costs throughout the distribution process. In the traditional distribution process, every step in product movement involves mark-ups so the reseller can earn profit. By selling directly to end buyers, manufacturers can "eliminate the middle man," removing one or more steps of mark-ups along the way.

7. Some companies engage in vertical integration solely to increase advantages over competition and to block competitors from gaining access to scarce resources or important markets. A manufacturing company may enter distribution or retailing to gain direct access to customer in a highly competitive market before its manufacturing competitors do.

8. Vertical integration gives companies access to more production inputs, distribution resources and process and...