Question

3. a) What is vertical integration? How does the scale of a company’s operations affect the vertical integration across value chain activities (2 points)?

b) Provide an example of a publicly-listed company that has vertically integrated across several value chain activities and clearly identify what these value chain activities are (1 point).

Answer 1

1- integration could be a strategy whereby an organization owns or controls its suppliers, distributors, or retail locations to regulate its price or provide chain. integration edges firms by permitting them to regulate the method, scale back prices, and improve efficiencies. However, integration has its disadvantages, together with the many amounts of capital investment needed.

Companies keep themselves abreast of on their competition. Retailers grasp what's commerce well. If an organization was vertically integrated with a business establishment, factory, and provide chain, they might be able to produce "knock-offs" of the foremost fashionable brand-name product. A knock-off could be a copy of a product—a similar product however company-branded with company promoting messages and packaging. solely powerful retailers will try this. Brand-name makers cannot afford to sue for infringement of copyright, as they might risk losing major distribution through an outsized merchandiser.

Many giant businesses arrange to management sourcing, producing, distribution, and promoting of their product, rather than departure it to different firms to handle one space or another. integration, whereas advantageous to some giant businesses that have positioned themselves properly in their market and business, could be a step several businesses merely cannot afford to require. Any company considering this step ought to lookout to completely perceive their ability to scale whereas fascinating the prices of acquisitions.

2- Zara
Zara, a Spanish consumer goods and accent company, has over one,000 shops worldwide. the key to their success is integration – from style to manufacture to retail. not like firms like Gap and H&M that purchase their garments from suppliers, Zara makes most of its own. Sixty p.c of its merchandise square measure created in house. This helps the corporate manage its inventory with extreme potency. It additionally permits the corporate to reply to seasonal and fashion changes terribly quickly. whereas Gap and H&M could take up to 9 months to introduce a brand new line of consumer goods, Zara will know in 2 to 3 weeks. The firm will respond quickly to any market contingency.