Question

What is the underlying difference between vertical control and vertical integration? In your answer describe the concepts of vertical control and vertical integration.

Answer 1

Step 1: Concepts-
Vertical integration: It is a strategy that is used by the company to gain control over suppliers or distributors to increase the power of firms in the marketplace, decreasing the cost of transactions and secure supplies and channels of distribution. It is used for the development of the corporate-level strategy.

Horizontal integration: It is a process used to increase the production of goods or services in the same part of the supply chain. It is in contrast to vertical integration.

Step 2: Differences-
i). Horizontal integration takes place between two firms having the same product and production level.
Vertical integration operates in different stages of the production process of firms.
ii). Horizontal integration has the aim of increasing the size of business and scale of production.
Vertical integration has to focus on the strength and smoothening of its production and distribution process.
iii). Horizontal integration has the advantage of eliminating competition between firms which extends the market share of the company.
Vertical integration leads to reducing the cost of production and wastage.
iv). Horizontal integration helps in acquiring control over the market.
Vertical integration is used for gaining control of the whole industry.