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LSDefine
Simple English definitions for legal terms
vertical integration
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A quick definition of vertical integration:
Vertical integration is when a company does everything it needs to make a product, instead of buying things from other companies. For example, a company that makes cars might also own a factory that makes the metal for the cars. This can help the company save money and have more control over the production process. It can also mean that the company has less competition because it doesn't need to buy things from other companies.
A more thorough explanation:
Vertical integration is the process of a company owning or controlling different stages of the production process for a product or service. This can include owning facilities that produce raw materials or parts, as well as owning distribution channels or retail outlets.
- A car manufacturer that owns a steel mill to produce the metal for its cars is an example of backward integration.
- A technology company that owns its own retail stores to sell its products is an example of forward integration.
- A fast food chain that owns its own farms to produce the ingredients for its menu items is an example of complete vertical integration.
These examples illustrate how a company can control different aspects of the production process to increase efficiency, reduce costs, and improve quality control.