Why is vertical integration considered risky in industries with rapid technological change?

Vertical integration is considered risky in industries with rapid technological change primarily because it requires significant capital and managerial skills. When a company chooses to vertically integrate, it means that it is taking on more control over its supply chain by merging with or acquiring other companies in its supply chain, either upstream (suppliers) or downstream (distributors). This process involves substantial investment in resources, be it financial, human, or operational capacity.

In a fast-evolving technological landscape, the high capital investments needed for vertical integration can be particularly risky. If a company invests heavily in acquiring resources or capabilities that soon become obsolete due to technology advancements, it can lead to substantial losses. Furthermore, the managerial skills required to effectively manage an integrated operation can also be complicated, as it demands a comprehensive understanding of multiple aspects of the business, which can be challenging to maintain in a rapidly changing environment.

Contrary to this, avoiding technological investments, guaranteeing long-term success in all market conditions, or limiting flexibility and innovation are not the primary reasons why vertical integration is risky in such industries. These factors do not primarily define the inherent risks associated with the integration approach in contexts where technological innovation plays a pivotal role in market dynamics. Therefore, the complexity and demands of high capital expenditure paired with