According to a North American dictionary entry vertical integration is defined as “merging of companies in supply chain: the merging of companies that are in the chain of companies handling a single item from raw material production to retail sale” (“Vertical Integration,” 2009). Though the definition of vertical integration is quite simple the concept is much more complicated than one may think. There are four strategic factors that must be established by business leaders before the implementation of vertical integration can take place that must be well-thought-out in order to achieve any level of success. The factors that influence vertical integration are economic, market, operational, and strategic.
Economic Factors Of the
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“The market power that a firm can obtain or lose is an essential factor to consider in the vertical integration assessment. A firm should assess the entire industry dynamics to determine how reliable it is and then decide whether to vertically integrate. In order to understand the overall industry attractiveness, the firm should perform a Porter's Five Forces analysis on the industry… “(Haupt, 2005).
Operational Factors Operational factors have everything to do with outward immediate appearance. For instance if the discussion focused on operational factors to consider when contemplating vertical integration in the fast food industry operational factors would include the appearance of the building where the service is being rendered, employee appearance and uniform cleanliness, customer service, and lastly the actual quality of food served. The thing about operational factors that is really scary is that the consumer has the upper hand because if they do not like the service or product social media allows them to spread the word to hundreds or possibly thousands of users. This sort of word of mouth campaign can ruin a business’ image instantaneously.
Strategic Factors Haupt discusses strategic factors that influence in her manuscript focusing on vertical integration. According to Haupt