The Benefits of Vertical Integration As Evidenced by Apple's Intent to Purchase Assets from Dialog (2024)

FAQs

How does vertical integration help Apple? ›

Apple Inc. has employed a vertical integration strategy for decades. Its software products are placed into electronic devices and computer systems manufactured and assembled by Apple using hardware and components also manufactured by the company.

A vertical integration strategy can deliver advantages, including greater economies of scale, lower variable production costs, decreased logistics costs and quality concerns and — yes — increased profitability.

What Are the Benefits of Vertical Integration? Companies pursue vertical integration for the obvious advantages it offers—namely greater control over their supply chain and the ability to offer lower prices while increasing market control.

In that context, vertical integration means a company controls everything from manufacturing to distribution. Apple, for example, designs and manufactures its own products, then sells them online and at physical Apple Stores.

Apple Business Integration

In this case, Apple uses both the backwards and forwards integration strategies. Apple has its own software, hardware and retail stores. Also, have their own services company. Apple is the only company who uses all techniques and we can say that it is vertically integrated into everything.

Advantages of vertical integration include resilience to supply chain disruptions, market power, and economies of scale. Drawbacks of vertical integration include high costs, less flexibility, and loss of focus.

There are three varieties of vertical integration: backward (upstream) vertical integration, forward (downstream) vertical integration, and balanced (both upstream and downstream) vertical integration.

How do firms benefit from vertical integration? Vertical integration allows firms to increase operational efficiencies through improved coordination of adjacent value chain activities.

What are 3 benefits of horizontal integration? ›

The advantages include increasing market share, reducing competition, and creating economies of scale. Disadvantages include regulatory scrutiny, less flexibility, and the potential to destroy value rather than create it.

Vertical integration is when a firm extends its operations within its supply chain. It means that a vertically integrated company will bring in previously outsourced operations in-house. The direction of vertical integration can either be upstream (backward) or downstream (forward).

Apple Inc.'s generic strategy is broad differentiation. This generic strategy focuses on key features that differentiate the company and its information technology products from competitors. Through the broad differentiation generic strategy, Apple stands out in the market.

Amazon. Amazon has vertically integrated much of its business. Not only does it act as a marketplace for buyers and sellers – but it also offers its own products and services, as well as its own distribution channel. So in effect, it has 3 stages in the supply chain.

Consequently, vertical integration affects operational efficiency as it improves throughput of materials and information along the supply chain resulting in lower lead times and higher delivery performance.

The most significant advantage of vertical integration is avoiding any supply disruptions. Suppliers can be unreliable if they are poorly-run. Suppliers are also sometimes impacted by labor strikes or disputes.

This type of vertical integration is conducted by a company advancing along the supply chain. A good example of forward integration would be a farmer who directly sells his crops at a local grocery store rather than to a distribution center that controls the placement of foodstuffs to various supermarkets.

Forward vertical integration involves acquiring a business further up (forward) in the supply chain – e.g. a vehicle manufacturer buys a car retail business. Another example might be Amazon or Netflix deciding to buy a chain of movie theatres (cinemas).

Apple didn't stop there, though. The company has since diversified into tablets, watches, smart-audio, and even electric vehicles. Diversification strategy saved Apple from failure, and helped them grow into one of the world's biggest corporations.

What effects vertical integration? ›

Vertical integration helps a company: Reduce costs across different parts of its production process. Creates tighter quality control and guarantees a better flow and control of information across the supply chain.

It may require a large investment to set up and maintain manufacturing or distribution centers, and your company may find it difficult to compete with other companies that outsource to countries with cheap labor. Vertical integration also allows for less flexibility, so it is difficult to reverse.

Key Takeaways

Vertical-integration is a strategy where a business undertakes control over various supply chain stages—raw material, production, distribution, sales, or customer support.

Facilitate mergers and acquisitions. Increase collaboration with business partners. Reduce time-to-market. Optimize IT resources and reduce costs.

There are a number of ways that a company can achieve vertical integration. Two of the most common are backward and forward integration.

vertical integration is the process in which several steps in the production and/or distribution of a product or service are controlled by a single company or entity, in order to increase that company's or entity's power in the marketplace.

Vertical integration is the control of two adjacent stages in the vertical marketing channel from producers to consum- ers. An example would be one firm engaged both in cattle feeding and meatpacking. There are two primary types of vertical integration: contract integration and ownership inte- gration.

1. Apple Keeps Its Product Presentation and Marketing Simple. Apple follows the philosophy of simple is better through their products, they don't overwhelm their targeted customers with too many choices, options or even parameters. Apple lets its products speak for themselves and keeps it's messaging and visuals simple ...

What is Apple's competitive advantage? ›

Apple's Ecosystem is the company's strongest competitive advantage, giving it unprecedented strength in withstanding disruption and competitive threats in its markets. Apple is fairly valued based on TTM P/E (4% / 16% undervaluation based Dividend Valuation / DCF Models).

Vertical Integration was first used in business practice when Andrew Carnegie used this practice to dominate the steel market with his company Carnegie Steel. It allowed him to cut prices and exhuberate his dominance in the market.

Types of Vertical Integration

Acquiring companies or assets upstream in the supply chain. An example of forward integration is if a farmer purchases a trucking company that transports milk (a downstream distributor) to distribute produce to retail stores.

Facilitate mergers and acquisitions. Increase collaboration with business partners. Reduce time-to-market. Optimize IT resources and reduce costs.

Horizontal integrations help companies expand in size, diversify product offerings, reduce competition, and expand into new markets. Vertical integrations can help boost profit and allow companies more immediate access to consumers.

Companies use outsourcing to reduce labor costs, lower their business expenses, and to focus on the core aspects of the business. While vertical integration offers many advantages, the process is time-consuming and expensive in practice, and outsourcing can also provide a competitive advantage for a business.

Vertical mergers will have fewer economies of scale because most of the production is at different stages of production. There is still scope for monopoly power. Also, a vertical merger can lead to monopsony power. e.g. tied pubs can charge a higher price to consumers and they have less choice of beer.

The study found out that the factor that influence a firm's decision to integrate vertically include certainty of demand for the firm's products, availability of adequate manufacturing facilities, investment costs, and the need for high market share.

Which is a good example of vertical integration quizlet? ›

A good example of vertical integration is: a crude oil refiner purchasing a firm engaged in drilling and exploring for oil. A vertical integration strategy can expand the firm's range of activities: backward into sources of supply and/or forward toward end users.