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¡®Vertical Integration¡¯ is a kind of vertical chain of production which consumer goods or services are produced through a series of steps. In the essay, our main aim is to discuss the advantages and disadvantage of vertical integration and outsourcing in kinds of situation. A car assembly will be used to compare the cases for outsourcing and vertical integration. ... However, firm can change the degree of vertical integration over time according to corporate strategy. ... ¡®The term outsourcing frequently is used to describe a movement away from vertical integration ¨C moving an activity outside the firm that formerly was done within the firm. ...
In the vertical integration decision, one question is concerned: which parts to be done internally and which parts to be outsourced among the whole components of car. ... Otherwise the car company should product such products within the company in the step of vertical integration, but it is only considerable when this part is critical for the final success of the product. ... However, the vertical integration can overcome this free-rider problem. ... Vertical integration can be effectively used to ensure the intermediary products and end-products are profits maximized in a firm with market power. Especially for the monopolistic companies, they often use the vertical integration method to extend their monopoly position. ...
Under the nonmarket transaction, for acquiring the maximum value of organizational arrangement, the companies will chose between vertical integration and Long term contract - i. ...
On the other hand, vertical integration and long term contract differ in ownership rights. Vertical integration keeps the ownership rights within one firm, whereas long term contract distribute them between firms. ... If car company was in uncertain environment, they will want to take the vertical integration method to avoid the contract becoming more expensive
To conclude, vertical integration takes the firms to determine the heart of competitive strategy. In addition, outsourcing was used to move away from vertical integration to help firms satisfy the maximum value of investment according to kinds of situation.
Approximate Word count = 1560
Approximate Pages = 6.2
(250 words per page double spaced)
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