What is vertical integration?

Vertical integration refers to the strategy of a company acquiring or merging with other businesses that are involved in different stages of the production process for a specific product. This typically includes companies that supply the raw materials, parts, or services needed to manufacture and distribute a finished product. By consolidating these various stages, a company can achieve greater control over its supply chain, improve efficiency, reduce costs, and enhance its competitive advantage.

In this context, the acquisition of businesses that produce parts of a product is the essence of vertical integration because it allows a company to bring different functions under one organizational umbrella, leading to improved coordination and potentially higher profit margins.