Which of the following is not a strategic disadvantage of vertical integration?
A) Vertical integration boosts a firm's capital investment in the industry, thus increasing business risk if the industry becomes unattractive later.
B) Integrating backward into parts and components manufacture can impair a company's operating flexibility when it comes to changing out the use of certain parts and components.
C) Vertical integration limits a company's ability to achieve greater product differentiation and to exercise direct control over the costs of performing value chain activities.
D) Forward or backward integration often calls for radically different skills and business capabilities than the firm possesses.
E) Vertical integration poses all kinds of capacity-matching problems.
C) Vertical integration limits a company's ability to achieve greater product differentiation and to exercise direct control over the costs of performing value chain activities.
Among the most serious drawbacks to vertical integration are: (1) vertical integration increases a firm's capital investment in its industry, (2) integrating into more industry value chain segments increases business risk if industry growth and profitability sour, (3) vertically integrated companies are often slow to embrace technological advances or more-efficient production methods, (4) integrating backward potentially results in less flexibility in accommodating shifting buyer preferences, (5) vertical integration poses all kinds of capacity matching problems, and (6) integration forward or backward often requires the development of new skills and business capabilities. Expanding a company's ability to achieve greater product differentiation and to exercise direct control over the costs of performing chain activities are actually two of the strategic advantages of vertical integration.
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