Learn in the textbookM&A and Corporate Restructuring
DefinitionVertical integration (垂直統合) means bringing the upstream or downstream stages next to your company, in the trade flow from raw materials to the consumer, into your own group.
ExplanationUpstream is the side closer to raw materials and parts; downstream is the side closer to sales and consumers. Owning the adjacent stages makes it easier to secure supplies, cut out middlemen's margins and keep quality consistent. On the other hand, carrying the extra plants and staff makes it harder to switch partners when demand or technology changes.
AnalogyLike a flour mill that owns both the farm growing its wheat and the bakery selling bread made from its flour. The front end makes the raw material, the back end sells to consumers, and both are stages different from its own.
Memory hookVertical means up and down. Picture trade flowing down a river from upstream to downstream, and stretch your reach up and down that line.