(Chapter 10 ) Vertical Integration – NOTES and OUTLINE

Corporate strategy:

How management react to take advantage of the environment (market) in corporate level.

One of the major issue is to determine supply chain.

Vertical integration in supply chain means that a firm owns its upstream suppliers and its downstream buyers.

• 3 variations of vertical integration (Need to review)
• Advantage: Monopolization (may not good for customers), control of price, stable or predictable market managed by own. Investment growth.
• Disadvantage: More effort and resource on management side 

1.       Forward

Supplier own its producer. When Suppliers manage the distribution of its products in the same supply chain belonging to one owner, it called Forward vertical integration

[EXAMPLE] Farmer sells vegetables to the local restaurant which he/she own

2.       Backward

Producer own its suppliers.  A company parches the parts from its own companies and produces its products.

[EXAMPLE] Ice cream company owns a dairy farm.

3.       Balanced  

·         Example and analysis

The 2003 purchase of DirectTV by News Corporation is an example of a forward integration through acquisition. DirectTV is a satellite TV company, and its purchase enabled News Corporation to use it as a medium to distribute more of its news, movies and television shows by managing the process itself.


Starbucks is best known as a chain of coffee shops. As such, it has various suppliers and inputs -- it buys coffee beans to make coffee as well as customized mugs and products to sell in its stores. It backward vertically integrated when it bought a coffee farm in China, because normally it would have to buy coffee beans from a coffee bean supplier.