Large companies are often involved in many different kinds of businesses and sell products in many different countries. So far we have identified that IKEA has been usingVERTICAL INTEGRATION to the Global furniture industry. Managers use corporate levelstrategy in VERTICAL INTEGRATION to identify which industries their company shouldcompete in to maximize its long run profitability. There are two types of vertical integration:1. Forward vertical integration 2. Backward vertical integration. So far we found that IKEA using backward vertical integration to expand their business and to make profit. Here are some benefits of IKEA to have vertical integration. Facilitating investment in specialized assets
A specialized asset is one that is design to perform a specific task and whose value is significantly reduces in its next best use. Here IKEA’s specializes asset is employees skills that employees acquired through training and experience. IKEA invested in specialized assetsbecause it allowed it to lower its cost structure and differentiate their product.
Enhancing product quality
By entering industries at other stage of the value added chain, IKEA enhanced the quality of the product in its core business and so strengthen its differentiation advantage.
Strategic advantage has been obtained when vertical integration makes it quicker, easier, and more cost effective to plan, coordinating, and transfer of product like finished goods from manufacturing plant to retail or distributing shop.
Increased Bargaining Power
IKEA used VERTICAL Integration because it allows them to obtain bargaining power over suppliers and increased their profitability. By consolidating the industry through VERTICAL Integration IKEA has become a much larger buyer of suppliers ’
product and use this as leverage to bargain down the price IKEA pays for its input, theroduct and use this as leverage to bargain down the price IKEA pays for its input,...
Please join StudyMode to read the full document