What Is a Vertically Integrated Business Model?

Written by stanley goff
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What Is a Vertically Integrated Business Model?
Pork production is a vertically integrated industry. (cute piggys. image by Catabu from Fotolia.com)

Vertical and horizontal integration with regard to business models refer to acquisitions and mergers within an industry. The horizontal "plane" is one stage in production. The vertical "plane" runs along the different stages of production.

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Mergers

Merging with businesses that produce the same thing you do is called horizontal integration. Merging with suppliers and "downstream" processors is vertical integration.

Example

Using the pork industry as an example, if the owners of one slaughterhouse begin buying out all the other slaughterhouses, they are attempting horizontal integration. If the owners of the slaughterhouses are buying the farms that produce the swine, the distributors and the packagers, then they are moving toward vertical integration. These strategies are frequently employed together.

Criticisms

Both horizontal and vertical integration have received criticism as models that promote monopolisation of industry. Vertical integration strategies also employ a strategy known as interlocking directorates, where the directors of different companies are shared, creating the impression of separate enterprises, when the actual leadership is the same.

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