What does vertical integration involve?

Vertical integration involves acquiring firms that supply or are customers for a firm's outputs, which allows a company to control more of its supply chain and distribution processes. This strategic move can lead to various advantages, such as reduced costs, increased efficiency, and improved market power. By controlling both upstream suppliers (backward integration) and downstream distributors (forward integration), a firm can better manage its resources, streamline operations, and enhance its competitive advantage.

This approach helps to mitigate risks associated with supply chain disruptions, improve product quality by maintaining closer oversight, and can even lead to better pricing strategies. The synergy created through vertical integration can drive innovation and operational efficiencies as firms become more interconnected in their processes.

The other options focus on aspects that do not define vertical integration. For example, while acquisition of businesses related through technology could be a part of a broader corporate strategy, it does not specifically address the supply chain relationships that vertical integration targets. Significant changes in company strategy and structure could occur as a result of vertical integration, but those changes are not the defining features of what vertical integration entails. Investment in unrelated sectors would describe diversification strategies, which diverges from the core concept of vertical integration. Thus, the focus on acquiring businesses within the supply chain is what accurately defines vertical integration