What does vertical integration involve?

Vertical integration involves a company's strategy of controlling more than one stage of the supply chain. This can take the form of producing goods or services that the company previously purchased from external suppliers or acquiring those suppliers themselves. The rationale behind vertical integration is to gain greater control over the supply chain, reduce costs, improve efficiency, and potentially increase market share.

Engaging in vertical integration allows companies to streamline operations, ensure quality, and potentially innovate in their manufacturing or service delivery processes. It can also shield the company from supply chain disruptions by minimizing dependency on external suppliers.

In contrast, collaborating with multiple independent suppliers typically aligns more with a strategy of maintaining flexibility and sourcing options rather than consolidating control. Sharing resources with competitors often pertains to strategic alliances or partnerships, which differ significantly from vertical integration. Outsourcing production to external partners represents a strategy focused on delegating responsibility rather than consolidating operations within the company itself. Each of these alternatives emphasizes different approaches to supply chain management that do not reflect the core essence of vertical integration.