Question

What are the advantages and disadvantagrs of vertical integration for firm?

Answer 1

Advantages

• It causes reduction/decrease in the costs ( transportation) as well as in the delivery turnaround times.
• Supply disruptions are decreased or minimized as there is no more dependency on suppliers.
• As the good/service gets delivered to buyers straight and promptly it increases the competitiveness of the firm.
• Firm will create and sell its own brand to the buyers consequently, sales and profitability will get boost.
• Buying large quantities of raw materials will lower the costs due to economies of scale.

Disadvantages

• There may be maladministration in the overall process upon companies becoming big.
• If the expertise of vendors and suppliers is more advanced outsourcing to them may be more productive (efficient).
• Debts will be increased in case capital expenditures are needed.
• Vertical integration costs are sufficiently great (more).