Question

Apple computer is a highly vertically integrated company. The design of products like the iPad is done by a division of Apple, while another division runs retail outlets to sell them directly to consumers. Use concepts from class the advantages and disadvantages of Apple being vertically integrated in this fashion.

Answer 1

A company is vertically integrated when it controls more than one level of the supply chains. Most technology companies can manage one or two disciplines of business but Apple is the only company that have all entities working together in harmony.Apple is vertically integrated and controls all the major parts of business .Apple has retail locations to sell its products and has manufacturing units across the globe. There are many advantages of vertical integration that helps in increasing the competitiveness and profitability of a businessThey are -1) Economies of scale-Companies achieve economies of scale when they lower their per unit fixed cost.They do this by buying supplies in bulk and thus distributing the cost over large quantity of products.Another way to achieve economies of scale is to cut cost by getting rid of middlemen , optimization of operations etc.Cutting costs make it possible to offer lower prices to customers.2) creating profit centers-Online stores of Apple make it possible to sell directly to consumers anywhere and any time.3)Expanding business geographically --Vertical integration gives scope to expand business across the globe by setting up distribution centers in new areas .Aplle products have become famous world wide.4)Quality control --Vertical integration helps in maintaing the quality of the Apple products.Apple has more control on the production process and so can successfully maintain higher quality.5)Vertical integration helps to differentiate between competitors. When Apple opened its first retail store in 2001, it had an upperhand over Microsoft in managing its customers.

Vertical integration also has risks. The disadvantages are 1)-Distributional stores which are already established may be affected adversely because vertical integration and selling online can bring loss to established stores.2)Outcome of vertical integration is not profitable.It is expensive because it requires large investment to set uo distributional centers and the company may find it difficult to compete with other companies that outsource distribution .3) Vertical integrtaion may led to technologies becoming obsolete when new technologies evolve.So in order to stay competitive ,the company should invest in new technology.4)Labor issues which are unforeseen--when a union company vertically integrates with a non union company , labor issues can arise.