Red Dragon Farm Inc. is a perfect example of a company that has applied vertical integration. It started as humble farms which grew hog and poultry which supplied to distributors. In 2005, it opened its own retail division under the brand Fresh Options and sold what used to be simple commodities as branded meat products. For this, it is able to charge a premium for all the value adding activities it incorporates in delivering fresh and safe meats for household consumption. Since it has been a supplier to distributors, RDF has acquired substantial knowledge in the meat selling industry. It is therefore easier to penetrate the retail market. This step was a big one but it was possible by hiring competent people who knew the business of selling meats. It if did not venture into the retail market, it would have remained as a supplier of commodities to distributors. But with the brand Fresh Options, not only does RDF reap profits out of growing swine and poultry but it also enjoys the profits of a seller of meat products to households where margins and profits are better. Therefore I would say that the forward vertical integration has proven to be more effective than having grown horizontally.
Is concentration better than diversification?
I believe that diversification is better than concentration, because it reduces risk in business. If one end of business fails, the entire business doesn’t have to. On the other end, if a business lacks concentration to the point of lacking competency, this also would result into failure.
For RDF, diversification has worked because it diversifies its profit centers (Feedmill, Farm, Meatshop). This model has worked given that has good enough competency for each division. Diversification allows for wider range of opportunities for growth of the business. If it went with concentration and developed itself as a better and bigger swine and poultry grower, many other players...