Abstract: Abstract Vertical integration strategy is concerned with the vertical scope of the firm and involves decisions regarding which stages of the vertical chain should be outsourced and which should remain within the organizational boundaries of a firm. This is often referred to as the “make versus buy” decision. It also involves decisions on the type and formality of the vertical arrangements. The decision of whether or not to vertically integrate has been motivated by (i) physical (ii) strategic and (iii) efficiency based considerations. In case of certain production processes, technological interdependencies provide a straightforward motivation for vertical integration. Strategic motives, on the other hand, relate to gaining market power or neutralizing the power of existing and potential competitors. Efficiency motives consider the economies of scale and learning economies that can be achieved by the market firms. The balance between transactions costs involved in using the market versus the administrative costs associated with vertical integration is also considered. A significant feature of the current trend is the hybrid nature of many vertical relationships in the form of strategic alliances, partnerships, and joint ventures that seek to benefit both from the flexibility of market transactions and the reduced transactions cost of integration.
Publication Year: 2015
Publication Date: 2015-01-22
Language: en
Type: other
Indexed In: ['crossref']
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