Location via proxy:   [ UP ]  
[Report a bug]   [Manage cookies]                
Scribd Logo
Upload

Welcome to Scribd!

  • 49 views

    Integrated and Its Alternatives

    Uploaded by

    Atikah Ramadhani
    This document discusses vertical integration and its alternatives. It explains that firms must decide between market exchange and vertical integration for each step in the production chain. The degree of integration varies across industries and firms. When asset specificity is high, vertical integration is more efficient, while outsourcing is more efficient when asset specificity is low. Alternatives to full integration include tapered integration, joint ventures, strategic alliances, and implicit contracts between firms.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd

    Integrated and Its Alternatives

    Uploaded by

    Atikah Ramadhani
    49 views10 pages
    This document discusses vertical integration and its alternatives. It explains that firms must decide between market exchange and vertical integration for each step in the production chain. The degree of integration varies across industries and firms. When asset specificity is high, vertical integration is more efficient, while outsourcing is more efficient when asset specificity is low. Alternatives to full integration include tapered integration, joint ventures, strategic alliances, and implicit contracts between firms.

    Original Title

    integrated and its alternatives PPT

    Copyright

    © © All Rights Reserved

    Available Formats

    PPTX, PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    This document discusses vertical integration and its alternatives. It explains that firms must decide between market exchange and vertical integration for each step in the production chain. The degree of integration varies across industries and firms. When asset specificity is high, vertical integration is more efficient, while outsourcing is more efficient when asset specificity is low. Alternatives to full integration include tapered integration, joint ventures, strategic alliances, and implicit contracts between firms.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    49 views10 pages

    Integrated and Its Alternatives

    Uploaded by

    Atikah Ramadhani
    This document discusses vertical integration and its alternatives. It explains that firms must decide between market exchange and vertical integration for each step in the production chain. The degree of integration varies across industries and firms. When asset specificity is high, vertical integration is more efficient, while outsourcing is more efficient when asset specificity is low. Alternatives to full integration include tapered integration, joint ventures, strategic alliances, and implicit contracts between firms.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    of 10

    INTEGRATION

    AND ITS
    ALTERNATIVES
    MAKING THE INTEGRATION
    DECISION
    • For each step in the vertical chain the firm has
    to decide between market exchange and
    vertical integration
    • The degree of vertical integration differs
    • Across industries
    • Across firms within an industry
    • Across transactions with in firm
    • An upstream firm and a downstream firm?
    • Make or Buy?
    • Tradeoff?
    TRADEOFF IN VERTICAL
    INTEGRATION
    • Using the market improves technical
    efficiency (least cost production) – it relates to
    production
    • Vertical integration improves agency
    efficiency (coordination, transactions costs) – it
    relates to exchange
    Firm should “economize” - choose the best
    possible combination of technical and agency
    efficiencies
    TRADEOFF

    • At high levels of assets specificity vertical


    integration is more efficient
    • At low levels of assets specificity outsourcing
    wins
    VERTICAL INTEGRATION

    • Product market scale and growth


    • gain more from vertical integration in large
    and growing markets
    • Asset specificity
    • gain more from vertical integration when
    production involves investment in
    relationship-specific assets
    EXAMPLE

    • In aerospace, greater design specificity


    increases the likelihood of vertical integration of
    production
    VERTICAL INTEGRATION AND
    ASSET OWNERSHIP
    • Make-or-buy decision is essentially a decision regarding
    ownership rights: if right of use is granted the owner
    retains residual rights of control (i.e.. Rights of control on
    what is not explicitly stipulated on the contract)
    • Three ways to organize a transaction in the vertical chain
    • The two units are independent (non integration)
    • Upstream unit owns the assets of the downstream unit (forward
    integration)
    • Downstream unit owns the assets of the upstream unit (backward
    integration)
    ALTERNATIVES TO VERTICAL
    INTEGRATION
    • Tapered integration (making some and buying
    the rest)
    • Joint ventures and strategic alliances
    • Long term collaborative relationships
    • Implicit contracts between firms
    TAPERED INTEGRATION

    • A firm may produce part of its input on its own


    and purchase the rest
    • A firm may sell part of its output through in-
    house sales efforts and sell the rest through
    independent distributors
    STRATEGIC ALLIANCES AND
    JOINT VENTURES
    • Alliances involve cooperation, coordination and
    information sharing for a joint project while the
    participating firms continue to be independent
    • A joint venture is an alliance where a new
    independent organization is created and jointly
    owned by the promoting firms

    You might also like