What does vertical integration involve?

Vertical integration involves performing activities across different stages of the value chain. This means that a company engages in various levels of production or distribution, rather than specializing in just one stage. For instance, a manufacturer practicing vertical integration might control both the production of goods and the logistics or distribution of those products, allowing for greater control over the supply chain, reduction in costs, and improved efficiency.

By managing multiple stages of production, a vertically integrated firm can enhance its market power and potentially increase profitability through economies of scale and synergies in operations. This strategic approach allows for better coordination between the stages, leading to improved product quality and more responsive customer service.

In contrast, focusing on only one stage of the industry limits operational scope, going public is related to equity financing rather than vertical alignment, and merging with companies at the same level typifies horizontal integration, which contrasts with the concept of vertical integration.