Sage-Tips

How does vertical integration compare with outsourcing?

Vertical integration expands the presence and influence of your business, while outsourcing involves contracting some of your business operations to external service providers. The suitability of vertical integration and outsourcing depends on the nature of your activities and industry of specialization.

Is outsourcing vertical or horizontal?

Vertical outsourcing, where the services provided are focused towards a specific product line; and horizontal outsourcing, where the tasks that are needed are distributed across many different product lines.

Which of the following is a benefit of vertical integration?

Vertical integration potentially offers the following advantages: Reduce transportation costs if common ownership results in closer geographic proximity. Improve supply chain coordination. Provide more opportunities to differentiate by means of increased control over inputs.

Is vertical integration expensive?

Vertical integration can be expensive, and growing the supply chain does not always lead to greater profits. Vertical integration also allows for less flexibility, so it is difficult to reverse.

What is the relationship between vertical integration and the supply chain?

Vertical integration lets you control critical aspects of your supply chain, such as sourcing of raw materials or distribution of finished goods, to enhance convenience, efficiency and effectiveness of production.

Does vertical integration decrease prices?

Spengler argued that while horizontal 2 Page 3 integration may increase prices and lower welfare, vertical integration may actually decrease prices and increase welfare through the elimination of double-marginalization.

What is vertical integration in agriculture?

Vertical integration is a competitive strategy by which a company takes complete control over one or more stages in the production or distribution of a product. In vertical integration company assure the full control supply of raw material to manufacture its product.

How is vertical integration used?

Vertical integration requires a company to take control of two or more of the steps involved in the creation and sale of a product or service. The company must buy or recreate a part of the production, distribution, or retail sales process that was previously outsourced.

What is the advantage and disadvantage of vertical integration?

When one organization can control all aspects of their business operations without third parties involved, then there are greater efficiencies that can be built into the system. The disadvantage of vertical integration is that it reduces the amount of diversification that an organization can access.

How does vertical integration increase profits?

Vertical integration is just a fancy way of saying “offering a complete solution”. It increases profits because the whole is better than the sum of its parts. Example:

What are the benefits of organisational outsourcing?

Organizations use outsourcing as a strategic initiative to improve customer service, quality and reduce costs. Outsourcing can be a permanent or temporary arrangement to bridge the gap in staffing, to learn better quality techniques or improvement of faulty product design.

Should companies be forced to outsource jobs?

Imposing laws to artificially restrict job outsourcing could make U.S. companies less competitive. If they are forced to hire expensive U.S. workers, they would raise prices and increase costs for consumers. The pressure to outsource might lead some companies to even move their whole operation, including headquarters, overseas.

What is an example of outsourcing in business?

As an example, you can outsource the network management oversight of an IT system but keep the end-user support in-house. This can provide an organization with a good balance of on-site support for employees. Organizations use outsourcing as a strategic initiative to improve customer service, quality and reduce costs.