Marketing Strategy of Coca Cola and Pepsico Essay Example

channels. In microeconomics and management, vertical integration refers to a management control style where companies in a supply chain are unified under one owner. Typically, each member of the supply chain produces unique products or services that combine to fulfill a common need.

Vertical Integration is a method of avoiding the hold-up problem and is contrasted with horizontal integration. It involves the ownership of downstream suppliers and upstream buyers by a firm. Andrew Carnegie, a steel tycoon in the 19th century, introduced and popularized this concept. The use of vertical integration by other businesspeople has resulted in improved financial growth and efficiency in their businesses. When a monopoly is created through vertical integration, it is referred to as an arm of a cartel.

Vertical integration refers to a single firm engaging in multiple stages of production, which sets it apart from horizontal integration. These stages encompass sourcing raw materials, manufacturing, transportation, marketing, and/or retailing. Vertical integration can be categorized into three types: backward (upstream), forward (downstream), and balanced (both upstream and downstream).

When a company has subsidiaries that produce inputs used in its product production, it is referred to as exhibiting backward vertical integration.

To ensure a stable input supply and consistent product quality, automobile companies often own subsidiaries such as tire, glass, and metal companies. This approach, exemplified by Ford and other car manufacturers in the past, aimed to centralize production and minimize costs.

Forward vertical integration in a company occurs when it has control over the distribution centers and retailers that sell its products. On the other hand, balanced vertical integration involves a firm controlling all aspects of the production process, from the

raw materials to the final delivery. While the three types mentioned are generalizations, real companies use different variations. Suppliers are often independent contractors, rather than owned subsidiaries. However, a client can exert control over a supplier if their contract guarantees the supplier's profitability. Similarly, distribution and retail partnerships can vary greatly in terms of complexity and interdependence.

Vertical integration is not often seen in open capitalist environments where ownership is explicitly owned, and instead, distributing ownership is a widespread tactic for mitigating risks. The Carnegie Steel company serves as a notable instance of vertical integration. This company not only owned the steel mills, but also the iron ore mines, coal mines supplying coal, ships for iron ore transportation, railroads for coal transport to the factory, and coke ovens for coal processing.

An institute was established by Carnegie to educate future generations on steel processes, as the company prioritized internal talent development over external hiring. American Apparel is a fashion retailer and manufacturer based in downtown Los Angeles. It presents itself as a vertically integrated industrial company overseeing various operations such as dyeing, finishing, designing, sewing, cutting, marketing, and distribution.

The company's advertisements are executed and distributed in-house, often featuring its own employees. It also operates and owns all of its retail locations instead of using franchises. According to management, the company achieves vertical integration within a week. The founder, Dove Charley, remains the majority shareholder and CEO. With control over both production and distribution, the company serves as a balanced example of a vertically integrated corporation. In the oil industry, companies like Complexion, Royal Dutch Shell, Consulship's or BP adopt a vertically integrated structure on

both multinational and national levels. This means they handle every step of the supply chain—from locating crude oil deposits to refining it into petroleum products like petrol/gasoline—and distribute fuel to their own retail stations for consumer sale. Reliance Industries, an Indian petrochemical giant, is an exemplary case of vertical integration in modern business.

Reliance's entry into the polyester fibers industry, known as Diarrhea Mambas, led to its expansion into petrochemicals. Additionally, Reliance has ventured into the oil and natural gas sector and the retail sector. As a result, Reliance now provides a diverse range of products such as oil and gas production, refining, petrochemicals, synthetic garments, and retail outlets. Likewise, during the early to mid 1900s, five vertically integrated studios dominated the American motion picture industry.

The studios controlled a large network of theaters and were responsible for showing films. Apple Inc. is an example of vertical integration, specifically with their phone and pad ecosystem where they control the processor, hardware, and software. Apple does not typically manufacture the hardware themselves, but third-party manufacturers produce their products according to their precise specifications. Vertical integration has both internal and external gains and losses, which vary depending on the technology in the industries involved. These gains and losses correspond to the stages of the industry lifestyle. When the technology is static, the gains and losses have been extensively studied.

Internal Gains:

• Lower transaction cost
• Synchronization of supply and demand along the chain of products
• Lower uncertainty and higher investment
• Ability to monopolize market throughout the chain by date?

In October 2008, there was vertical

expansion.

Vertical expansion, in economics, refers to the growth of a business enterprise by acquiring companies that produce necessary intermediate goods or assist in marketing and distributing its products. This type of expansion is beneficial as it ensures a firm's access to required supplies and the desired market for selling its products. Ultimately, it leads to a more efficient and profitable business with reduced costs. Lateral expansion, on the other hand, involves the growth of a business by acquiring similar firms in order to attain economies of scale.