ReviewEssays.com - Term Papers, Book Reports, Research Papers and College Essays
Search

Strategic Advantages of Backward Integration

Essay by   •  February 27, 2011  •  Essay  •  446 Words (2 Pages)  •  5,085 Views

Essay Preview: Strategic Advantages of Backward Integration

Report this essay
Page 1 of 2

Strategic Advantages of Backward Integration

* Generates cost savings only if volume needed is big enough to capture efficiencies of suppliers

- Potential to reduce costs exists when

- Suppliers have sizable profit margins

- Item supplied is a major cost component

* Resource requirements are easily met

* Can produce a differentiation-based competitive advantage when it results in a better quality part

* Reduces risk of depending on suppliers of crucial raw materials / parts / components

Strategic Advantages of Forward Integration

* To gain better access to end users and better market visibility

* To compensate for undependable distribution channels which undermine steady operations

* To offset the lack of a broad product line, a firm may sell directly to end users

* To bypass regular distribution channels in favor of direct sales and Internet retailing which may

- Lower distribution costs

- Produce a relative cost advantage over rivals

- Enable lower selling prices to end users

Strategic Disadvantages of Vertical Integration

* Boosts resource requirements

* Locks firm deeper into same industry

* Results in fixed sources of supply and less flexibility in accommodating buyer demands for product variety

* Poses all types of capacity-matching problems

* May require radically different skills / capabilities

* Reduces flexibility to make changes in component parts which may lengthen design time and ability to introduce new products

Pros and Cons of Integration vs. De-Integration

* Whether vertical integration is a viable strategic option depends on its

- Ability to lower cost, build expertise, increase differentiation, or enhance performance of strategy-critical activities

- Impact on investment cost, flexibility, and administrative overhead

- Contribution to enhancing a firm's competitiveness

Many companies are finding that de-integrating value chain activities is a more flexible, economic strategic option!

Outsourcing Strategies

* Concept:

- Outsourcing involves withdrawing from certain value

...

...

Download as:   txt (3.3 Kb)   pdf (62 Kb)   docx (10.3 Kb)  
Continue for 1 more page »
Only available on ReviewEssays.com
Citation Generator

(2011, 02). Strategic Advantages of Backward Integration. ReviewEssays.com. Retrieved 02, 2011, from https://www.reviewessays.com/essay/Strategic-Advantages-of-Backward-Integration/44082.html

"Strategic Advantages of Backward Integration" ReviewEssays.com. 02 2011. 2011. 02 2011 <https://www.reviewessays.com/essay/Strategic-Advantages-of-Backward-Integration/44082.html>.

"Strategic Advantages of Backward Integration." ReviewEssays.com. ReviewEssays.com, 02 2011. Web. 02 2011. <https://www.reviewessays.com/essay/Strategic-Advantages-of-Backward-Integration/44082.html>.

"Strategic Advantages of Backward Integration." ReviewEssays.com. 02, 2011. Accessed 02, 2011. https://www.reviewessays.com/essay/Strategic-Advantages-of-Backward-Integration/44082.html.