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Vertical Integration has become a important aspect of apparel industry. Vertical integration seems to be cost effective and helps reducing the suppliers bargaining power.It helps the firm to obtain economies of scale and thus reduce prices.
I agree that vertical integration brings together a lot of advantages, but only an established identity can get into such kind of proposal as it has high cost and more importantly only a firm with high upstream capacity can take care of effective downstream activities.
Backward Integration leads to Cost and Control benefits for any business identity, but still a lot of companies prefer to outsource some of business functions, one of the reasons for that is that companies don't want to deviate from their key or core business. Wal-mart for example is the world biggest retailer and can easily set up its own manufacturing units, but still it outsources its private labels.
Another reason that might stop a company from getting into vertical integration is the "Expertise" required. Maruti for example is India's biggest car manufacturer, maruti has a huge consumption for Glass, it can set up its own unit for the same. but still they buy it from Asahi India Glass, reason being Asahi India Glass has the expertise and experience required for manufacturing a complicated product like glass.
Vertical Integration is certainly one of the way companies gain competitive advantage. It does provide company flexibility in terms of cost and control. Companies who have complete control across a value chain can certainly out play its competitors.
vertical integration is possible in case where the company is very strong in its key core business .for example they is a fabric supplier which has its own factories and manufacturing fabric on a very large scale. he knows that many apparel manufacturer companies are dependent on it, he has the power of bargaining in his hands . he now has two options , either he ll be happy getting the profit from them or he can start his own manufacturing unit. and side by side he can also supply the fabric to other companies . in this way he can earn double profit . it depends upon the investment one can make and the risk the fabric manufacturer is ready to take. so VI is one of th way the companies have competitive advantage, have them have bargaining power .
vertical integration is a very good way in which a company can get an command on many feild like from manufacturing to retailing. it helps to expands the management control but for this kind of execution financial backup is needed and only well doing organization only can do this sucessfully. example- relience. this is a good example to describe monopoly also because through vertical integration one organization can build a monopoly on that particular segment (apparel, automobile etc)
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Vertical Integration has become a important aspect of apparel industry. Vertical integration seems to be cost effective and helps reducing the suppliers bargaining power.It helps the firm to obtain economies of scale and thus reduce prices.
ReplyDeleteI agree that vertical integration brings together a lot of advantages, but only an established identity can get into such kind of proposal as it has high cost and more importantly only a firm with high upstream capacity can take care of effective downstream activities.
ReplyDeleteBackward Integration leads to Cost and Control benefits for any business identity, but still a lot of companies prefer to outsource some of business functions, one of the reasons for that is that companies don't want to deviate from their key or core business. Wal-mart for example is the world biggest retailer and can easily set up its own manufacturing units, but still it outsources its private labels.
ReplyDeleteAnother reason that might stop a company from getting into vertical integration is the "Expertise" required. Maruti for example is India's biggest car manufacturer, maruti has a huge consumption for Glass, it can set up its own unit for the same. but still they buy it from Asahi India Glass, reason being Asahi India Glass has the expertise and experience required for manufacturing a complicated product like glass.
Vertical Integration is certainly one of the way companies gain competitive advantage. It does provide company flexibility in terms of cost and control. Companies who have complete control across a value chain can certainly out play its competitors.
ReplyDeletevertical integration is possible in case where the company is very strong in its key core business .for example they is a fabric supplier which has its own factories and manufacturing fabric on a very large scale. he knows that many apparel manufacturer companies are dependent on it, he has the power of bargaining in his hands . he now has two options , either he ll be happy getting the profit from them or he can start his own manufacturing unit. and side by side he can also supply the fabric to other companies . in this way he can earn double profit . it depends upon the investment one can make and the risk the fabric manufacturer is ready to take.
ReplyDeleteso VI is one of th way the companies have competitive advantage, have them have bargaining power .
vertical integration is a very good way in which a company can get an command on many feild like from manufacturing to retailing. it helps to expands the management control but for this kind of execution financial backup is needed and only well doing organization only can do this sucessfully. example- relience. this is a good example to describe monopoly also because through vertical integration one organization can build a monopoly on that particular segment (apparel, automobile etc)
ReplyDelete