Vertical Integration The ownership of inputs or distribution channels What

Vertical integration the ownership of inputs or

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Vertical Integration The ownership of inputs or distribution channels“What percentage of a firm’s sales is generated within the firm’s boundaries?” Backward Vertical Integration Owning inputs of the value chainForward Vertical Integration Owning activities closer to the customerBackward and Forward Vertical Integration Along the Industry Value Chain
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The Vertical Value Chain of Your Cell Phone Raw materials Chemicals, ceramics, metals, oil for plastic Intermediate goods and components Integrated circuits, displays, cameras and batteries Original equipment manufacturing firms Assembly After-sales service and support AT&T, sprint, T-mobile, Verizon etc Forward and Backward Integration: The Smartphone Industry Benefits and Risks of Vertical Integration Benefits Lowers costs Improves quality Facilitates scheduling and planning Facilitates investments in specialized assets Co-located assets, unique equipment, human capital Secures critical supplies and distribution channels When does vertical integration make sense? When there are issues with raw materials Eg. Henry Ford ran mining operations To enhance the customer experience Eliminate annoyances & poor interfaces Risks Increase in costs
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