If you are speaking of vertical integration, this is most
often achieved by a company acquiring some of its key suppliers and bringing them
in-house. This is done to lessen the risk exposure the firm has to a supplier failing,
being a acquired by a competitor, or having a drop in quality of the materials supplied.
The acquiring company now also gains control over the inputs to its products, but
benefits from the profit margins on those inputs.
A firm
that does not sell directly to the consumer can integrate downward as well, by acquiring
or creating its own channels to the consumer. It may purchase its distributors or open
its own stores depending on the nature of the business they are in. This integration
also removes risk for the firm by securing the direct path to market and ensuring
ongoing sales, particularly if a distributor is in a potential conflict of interest by
another company it distributes expanding its product line into an area that other firms
are already in.
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