VERTICAL INTEGRATION Meaning and
Definition
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Vertical integration is a business strategy whereby a company extends its control over various stages of the production and distribution process within an industry. It involves the acquisition or ownership of several levels of the supply chain, starting from the raw material suppliers to the end consumers. This approach allows a company to gain a comprehensive control and influence over its entire production and distribution chain, eliminating the need for external suppliers or intermediaries.
In vertical integration, a company may choose to integrate vertically by either pursuing backward integration or forward integration. Backward integration involves the integration of activities that are closer to the source of raw materials, such as acquiring the suppliers or producers of essential components. Forward integration, on the other hand, involves the integration of activities that are closer to the end consumers, such as acquiring distribution channels or retail stores.
By implementing vertical integration, companies can gain numerous benefits. For instance, it can lead to cost savings by reducing transaction costs and eliminating markup charges from suppliers or distributors. Furthermore, it provides greater control over the quality and availability of inputs, enhances coordination and communication within the production process, and allows for a synchronized response to market changes. However, vertical integration also carries risks, such as increased capital investment, reduced flexibility, and potential conflicts of interest within the integrated supply chain.
Overall, vertical integration is a strategic approach that enables firms to gain control over the entire production and distribution process, thereby potentially enhancing efficiency, cost-effectiveness, and competitive advantage in the industry.
Common Misspellings for VERTICAL INTEGRATION
- certical integration
- bertical integration
- gertical integration
- fertical integration
- vwrtical integration
- vsrtical integration
- vdrtical integration
- vrrtical integration
- v4rtical integration
- v3rtical integration
- veetical integration
- vedtical integration
- veftical integration
- vettical integration
- ve5tical integration
- ve4tical integration
- verrical integration
- verfical integration
- vergical integration
Etymology of VERTICAL INTEGRATION
The word vertical integration consists of two components: vertical and integration.
1. Vertical: The term vertical comes from the Latin word vertex, which means highest point or summit. It also has connections to the Latin word vertere, meaning to turn. In the sense of vertical integration, the term refers to the hierarchical structure or position within an organization or industry.
2. Integration: The term integration stems from the Latin word integrare, which means to make whole or to renew. In the context of vertical integration, it refers to the process of combining different stages or aspects of production within a single company.
Therefore, the etymology of vertical integration incorporates the concept of height or hierarchy along with the notion of bringing together or combining various elements.
Similar spelling words for VERTICAL INTEGRATION
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