Vertical integration

There are several different business models for companies to create sound business practices. Vertical integration is the model that allows a company to control aspects of its business by owning other companies. In contrast to horizontal integration, vertical integration involves buying companies that are either up or down from the existing company in the SUPPLY chain. For instance, a clothing store buys a manufacturing plant to make sure it has a stable supply of clothing. The clothing store not only gains a stable supply source but can also create its own fashions unique to its store. There are two kinds of vertical integration: forward and backward. Both types can be used either simultaneously or separately, depending on the company’s goals and/or problems. Forward integration involves buying the aspects of the business that deal with the public, such as marketing or ADVERTISING. A good example of forward integration occurred when GFI Premium Foods, a meat-processing company, bought its own freight line and storage company so it could make sure its meat reached its customers on time. Backward integration involves buying the aspects of the business that entail supplying the PRODUCT, such as manufacturing. American Tower Corporation began by selling communications towers, but through backward integration they now own a company that creates the towers and a paint company that finishes them as well as the construction company that assembles them. A good example of total vertical integration is seen in Abbott Labs, a company that started out selling medicines. Today Abbott owns the manufacturing plants that create the medicines, the marketing companies that sell it, and the machines that administer the medicines in hospitals.