MNC ENVIRONMENT

MNC Environment

MNC Environment

Vertical Integration

The term vertical integration explains the selection of a manufacturer or assembling of a certain product, to integrate within their own activities more "intermediate steps" necessary to the finished product. Vertically integrated firms are integrated by a hierarchy and contribute to a common possessor. Generally every component of the hierarchy deals with various steps and products together satisfying a mutual need (Kozami, 2002). To cite one example, Sony, unlike other technology companies (like HP, where 75% of the total cost of a product is generated from 30 suppliers), has implemented a deep vertical integration that is leading the company to follow the entire chain production of its products (Hill & Jones, 2012).

There are two types of vertical integration: Forward integration (upstream integration) and backward integration (integrating downstream).

Forward Vertical Integration:

The strategy going forward vertical integration is reflected in the growth of the company through the acquisition or strengthening of control over the same structures, located between the firms and end users, namely, systems of distribution and sales. This type of integration is very beneficial when mediation services are extended or when the firm cannot find intermediaries with a quality level of work (Kozami, 2002).

Backward Vertical Integration:

The strategy of backward vertical integration of an MNC is focused on growth through acquisition or by gaining control of the suppliers. The firm could either create subsidiaries engaged in supplying or acquiring company is already engaged in the supply. Implementation of the strategy of vertical integration feedback can give us a very favorable results related to the fact that the reduced dependence on the volatility of components and suppliers queries. Moreover, as the center of the delivery costs for the firm can become a case of vertical integration back into the center of income (Kozami, 2002).

Vertical Integration in Global Food Industry:

The global ...