Question

Why did business leaders begin the practice of vertical integration?

Answer 1

Answer:

So they could could control the cycle of a product from creation to sale.

Explanation:

In vertical integration, businesses will make an effort to own every entities that is needed to complete all of their operation.

For example, let's say that you own a successful Burger restaurants. So far , you manage to obtain profit by buying the meat from local markets and resale it in the form of delicious burgers.

In this case, vertical integration can be used to increase your profit by creating your own meat production farm. This will make able to control cycle of a product from creation to sale.  Your material cost will also become lower and you will increase your profit margin.

Answer 2

The business leaders began the practice of vertical integration because they could regulate the cycle of a product from production to sale. It is in line with the theory of vertical integration.

 

EXPLANATION:  

Vertical integration is a master plan  in which a company regulates or owns its providers, retail, or distributors, sites to regulate its value or supply chain. It aids companies by enabling them to control processes, upsurge efficiency, and decrease costs. However, vertical integration has disadvantages, comprising a substantial capital investment needed amounts.

 

There are various schemes that companies employ to control various supply chain segments. The two most common methods of vertical integration are backward and forward integration.

• Backward Integration

Backward integration is when a corporation enlarges backward on production lines to manufacturing, it means that a seller buys the producer of their products.

• Forward Integration

Forward integration is a tactic that corporations employ to enlarge by purchasing and regulating the direct distribution or company products’ supply.

 

There are also advantages and disadvantages of using vertical integration:

Advantages

• Reduce transportation costs and reducing delivery completion times

• Decrease supply interruptions from suppliers who may fall into financial difficulties

• Enhance competitiveness by sending products to consumers directly and speedily

• Lower costs by economies of scale, which reduce unit costs by purchasing large quantities of raw materials or restructuring the manufacturing process

• Increase sales and success by generating and retailing a very own brand

Disadvantages

• The company may become too big and mishandle the entire process

• Subcontracting to suppliers and vendors may be more efficient if their proficiency is notable

• Vertical integration costs such as supplier purchases can be very significant

• Increased numbers of debt if a loan is needed for capital spending

LEARN MORE:  

If you’re interested in learning more about this topic, we recommend you to also take a look at the following questions:

• What is vertical integration? https://brainly.com/question/11773609

• What is the difference between virtual integration and vertical integration? https://brainly.com/question/2258203

KEYWORDS : Vertical Integration, Business

Subject  : Social Studies

Class  : 7-9

Sub-Chapter : Vertical Integration