This term paper gives an overview of the meaning of vertical intergration, the explanation of the causes and consequences of vertical integration heavily influenced by resource allocation, demands for higher productivity, lower costs, and higher profits that takes place within private firms and related types of hierarchical organizations. This paper also aims at contrasting Chandler’s views to Williamson’s view on Vertical Integration. Introduction In understanding vertical integration there is need to understand the neoclassical theories of economics and sociology as in Chandler’s research views of 1977 and Williamson’s views of 1987.
Vertical integration is the extent to which a firm owns its upstream suppliers and its downstream buyers. The firm may own the business in many steps of the production process. while it controls all the processes needed to manufacture the product and everything it needs to make the product. Therefore, this means it is characterised by one firm engaged in different parts of production (e. g. growing raw materials, manufacturing, transporting, marketing, and/or retailing) There are three types of vertical intergration, namely:
Backward vertical integration is when company controls subsidiaries that produce some of the inputs used in the production of its products. For example, Food packing company may own a paper manufacturing company,a glass company, and a plastic manufacturing company. Control of these three subsidiaries is intended to create a stable supply of inputs and ensure a consistent quality in their final product. Forward vertical integration, is when a company controls distribution centers and retailers where its products are sold.
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