Question

First, identify a manufactured product such as a car, a desktop computer, a tablet… and describe the different stages of the value chain for this product. Second, identify a company that sells the product you chose To what extent is the company vertically integrated? What are the advantages and disadvantages of vertical integration for this company?

Answer 1

The different stages of the value chain for a car are Inbound logistics, Operations, Outboard logistics, Marketing and sales, and services. These activities are supported by infrastructure, human resource management, technology development, and procurement. An automobile company for cars can be General Motors and its advantages of being vertically integrated are as:

(i) Owning major parts of the supply chain liberates General Motors from relying too much on production chain of suppliers.

(ii) It allows the company to develop comparative advantage and raise their share in the market

(iii) It allows to control costs in the distribution of products i.e. more utilization and lower wastage and lower transportation costs.

(iv)It allows positive differentiation to distinguish itself from competition with the use of effective marketing.

Disadvantages of vertical integration are as:

(i) there is capacity balancing problem between upstream and downstream operations.

(ii) vertical mergers have fewer economies of scale as most of the production takes place at different levels.

(iii) It creates a barrier to market entry.

(iv) It requires high investment for capital