Ch7

Question 1

What is vertical integration?

Answer 1

Vertical integration occurs when a company becomes its own supplier (backward) or distributor (foward)

Question 2

Benefits of vertical diversification?

Answer 2

1) Economics of combine operations (Proximity, reduced handling, etc)
2) Economies of internal control and co-ordination
3) Economies of avoiding the market (Negotiation, packaging)
4) Tap into technology
5) Guaranteed demand/supple

Question 3

Disadvantages of vertical diversification (4)

Answer 3

1) Increases operating costs
2) Reduce flexibility to change partners
3) Capital investment needs
4) New skills