BUSINESS-WORLD ECONOMY

BUSINESS-WORLD ECONOMY

VERTICAL DISINTEGRATION

Vertical disintegration is a situation where various diseconomies of scale or scope have broken the production process into different separate companies, each performing a limited subset of activities required to create a finished product, (Chen andYongmin2005).

One of the mainreasons for vertical disintegration is to share risk where, in some cases, small firms may be responsive to changes in market conditions. Vertical disintegration is most likely to operate in volatile markets. Business is always looking for new methods to reduce cost and to control the quality of the products and the services the industry provide(Doellgast, Virginia, and Greer 2007).A company can have the ability to create a competitive advantage by integrating different stages of its supply chain and production process into their business..

A firm can be currently vertically integrated into several stages may decide to exit from a specific or particular stage for strategic or cost reasons. In case of technical advances or change in competitive conditions, this may be cheaper for a firm to buy materials from outside suppliers than continuing to self-supply. The emergence of new distribution channels various firm products may remove imperative for its distribution outlets(Holmes and Thomas, 1999). In some situation the vitality of profits in the face of cyclical downturns in demand and long-term decline in need, this may make a firm to reduce the depth and size of its investment in a multi-stage operation. Many footwear companies have a flagship store that sells a broader range of products than those available from outside retailers (Jacobides and Michael2005).

References

Holmes, Thomas J. “Localization of industry and vertical disintegration.” Review of Economics and Statistics 81.2 (1999): 314-325.

Jacobides, Michael G. “Industry change through vertical disintegration: How and why markets emerged in mortgage banking.” Academy of Management Journal 48.3 (2005): 465-498.

Chen, Yongmin. “Vertical disintegration.” Journal of Economics & Management Strategy 14.1 (2005): 209-229.

Doellgast, Virginia, and Ian Greer. “Vertical Disintegration and the Disorganization of German Industrial Relations 1.” British Journal of industrial relations 45.1 (2007): 55-76.