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Chanel (Subject) / Vertical Integration (Lesson)
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- Vertical Integration Scopes, Ratio, Example and Def -Product, Geographical, Vertical Scope -Vertical Integration is firms ownership and control in the vertical value chain. The more ownership the mor vertical integration. Ratio= (Firms Value added)/(Sales revenue) e.g Lindt, Lidl
- Types of Vertical Integration -Forward (downstream) integr. ->access to next level customer -Backward (upstream) integr. ->control inputs -Full integration -Partial integration
- Development VI -up to 1970 more VI e.g. Carnegie -than decline since 70s Richard rumelt -current VI is rising again ThyssenKrupp: building management
- Pro VI -Foreclosing of inputs and outputs to competitors -Cross subsidzation to squeeze out focused competitors -Increase barries to entry -control proprietary knowledge
- Con VI -Loss of market incentives drives internal costs -Loss of economies of scale by third party -Loss of focus -Bureaucratization
- Transaction cost Def Types -Transation Cost are the economic equivalent of friction in physical systems Types of TC: -Motivation cost -contracting cost -coordination cost -adaption cost
- Reasons to outsource distribution -Motivation -Specialization -Economies of Scale -Heavier market coverage -Survial of the eco fittest
- Reasons to verticalise distribution -Specificity -Rarity -Internal uncertainty -Performance ambiguity
- VI strategies -Value migration -commoditization of products -customer demand integrated solutions -get end customer access
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