Example Of Vertical Integration

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Recommended: Make or buy decision

The decision of a company whether to perform an activity itself or to purchase it from an independent firm is known as a make-or-buy decision. Vertical integration demonstrates when a company expands its business into areas that are at different stage of production, or vertical chain, the company is actually considering a make-or-buy decision. For example, a retailer can either choose to buy products from the supplier, or acquires the supplier to produce by itself. Vertical integration can decrease transportation expenses and reduce turnaround time, thus help companies take costs advantage and improve efficiency. However, the key reason for a company to vertically integrate is the market default risk and unreliability.

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