Vertical integration is a growth strategy in which a company gains control over its supply chain by acquiring or merging with its suppliers or distributors. This approach allows the company to streamline operations, reduce costs, and improve control over the production and distribution process.
Why might a startup pursue vertical integration?
Vertical integration can help startups reduce dependency on external suppliers, lower costs, and improve product quality and delivery times. By controlling more of the supply chain, startups can increase efficiency and better manage risks.
What are the risks of vertical integration for startups?
Vertical integration requires significant capital and operational capacity, which can strain a startup’s resources. It may also limit flexibility if the company becomes too reliant on its integrated supply chain rather than adaptable to market changes.
How does vertical integration differ from horizontal integration?
While vertical integration focuses on controlling the supply chain, horizontal integration involves acquiring competitors within the same industry to increase market share. Each strategy addresses different growth objectives.
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