Vertical and Horizontal Integration Essay Example | Topics and Well Written Essays - 2500 words

Vertical and Horizontal Integration - Essay Example Companies, especially in the technology industry, are continuously reorganizing and restructuring. This is in order to keep their relevance in a field that HP’s CEO cites as ruthless.The technology industry has continuous consumer shifts, new inventions, and these present risks for redundancy. Companies that manufacture hardware in previous years are now acquiring the production of software. Companies that only dealt with software are acquiring hardware production facilities in a bid to stay afloat; this occurred in the case of HP and Google. HP has been, since its inception, manufacturing hardware, but in 2011, it acquired Autonomy, a software maker (Idea 2011). In the case of Google, in has since acquired Motorola, which deals with handset manufacturing (Blodget 2011). Other industries seem to be inclined to this restructuring. For example in the fashion industry, due to strict employment law and labor intensive nature of the apparel industry, companies had shifted to offsho re production in a bid to diminish costs and elevate returns margins. Nevertheless, an internalized company, Zara, bypassed the companies that operated using this model, in size and profitability. Zara is the current leader in apparel retailing, overtaking GAP and H&M. Inditex, which owns Zara, oversees the production of cotton, its processing and final conversion to fashion goods. This happens in its more than 100 companies dealing with different levels of production. Oversea production compromised lead-time (time taken for goods to reach consumers and responsiveness to customer needs. This led to higher levels of inventory cost; this was absent in Zara’s model, which controlled its production, designing, making and retailing of its products. This allows for lower inventory costs, increased lead-time, and efficiency (Grant 2005, p. 398-399). Numerous apparel companies, for example, GAP, are returning to local production to balance their market competitiveness in an industry, which moves, terribly fast. Another industry with a similar trend is the oil and gas industry. In this segment, companies with gross market shares, for example, BP and ExxonMobil control and invest in petroleum exploration, mining, transportation, processing, supply, and retailing of petroleum goods. These structural adjustments are not without controversies and questions. Regulating body determine whether, apart from the companies’ increased revenues, there are benefits to consumers. For example, authorities and litigators have extensively questioned and subjected to investigations, the move by Google. This write up will evaluate the definition and implications of the two distinct structural models, their advantages and limitations. Defining the concepts: Vertical integration Vertical integration refers to a form of management control. Companies using this model, have other affiliated companies, either in upstream or downstream, which a common owner as their basis of unity. This is achieved through mergers or acquisition of companies at different levels of production. Vertical integration refers to a company’s ownership of vertically related activities. The greater the firm’s tenure over successive stages of the value chain for its creations, the greater the extent of vertical integration. This index depends on the ratio of the company’s value added to its sales revenue. In the technology industry, specifically PC industry, these levels of production may be categorized as follows; raw materials, which mainly include plastic, silicon and other metals. Components parts manufacturing follow, examples in this category include Intel and micron technology. The next level is the final assembly done by corporations including HP and Dell. The last stage involves delivery to customers through retailers such as OfficeMax and CompUSA. In the apparel industry, the above stages would be divisible into cotton growing or petroleum