Matching Vertical Integration Strategies to Competitive Conditions

The vertical integration (VI) strategies of 192 firms were examined to see how successful and unsuccessful uses of VI differ under diverse environmental and strategic forces. The results showed that companies that implemented VI less successfully transferred more goods and services internally. Such firms made those transfers more often under adverse industry conditions. They frequently undertook more integrated activities in-house and had longer processing from ultra-raw materials to finished product. Many of the companies using VI and facing adversity had the necessary bargaining power to make advantageous contracts for goods and services but opted to produce them instead, leading to an unnecessarily risky ownership position. The findings suggested that companies should check frequently to see if some activities can be contracted out. It was found that analysis of the forces affecting VI can be applied to decisions in a portfolio management context.