Vertical Integration Walmart

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Vertical integration is a business growth strategy for economics of scale. It is typified by one firm engaged in different parts of production example; growing raw materials, manufacturing, transporting, marketing, and/or retailing to expand business in existing market for the firm. It can function in two directions both forward integration and backward integration. In Forward integration involves company to develop strategy to control the firm product distribution either through distribution centers or retailers. It is a necessary action when companies have potential benefits from handling, shipping of their own products directly to customers, or the retail selling their own products in brand stores. In backward integration involves company to develop strategy to control its supply of raw material by acquiring its supplier firm or setting up its own facilities to produce the material to achieve cost efficiency and enjoy economic of scale. Often it is learnt that the huge investment is required for firm to develop vertical integration, therefore, it is important for the firm to know beforehand whether vertical integration strategy add specific value to the company, and does it aligned with the overall strategy of the company, customer needs and wants. For Wal-Mart, it is better to develop vertical integration based on the firm establishment in the market and the firm is always looking into expansion. Walmart is a well-known hypermarket with 8500 stores across 15 different countries. It is in business of selling everything to customers’ needs in their everyday lives. Wal-Mart practices vertical integration strategy where it has developed its own name brand to sell products called Sam's Choice Today; Sam’s Choice extended its products like soft drinks, cereal, and dog food. While they still don't grow their own crops or raise their own livestock, it is still a form of vertical integration. In 2010, the company expanded to cater home entertainment by buying over Vudu that provides online streaming service offering users to purchase movies that is compatible to any internet capable device. Having strong presence in the retail industry, the firm expanded business to offer second hand car. The firm leverage on its competencies to provide its own product to consumer. Also, Wal-Mart works heavily with its suppliers. This symbiotic relationship can be seen as vertical integration due to the level at which Wal-Mart analyses its suppliers and improves their manufacturing processes. Wal-Mart definitely has the business strategy of Low Cost Leadership. They do nothing to really differentiate themselves from competitors and provide no-frills self-service stores that always provide the lowest prices. Wal-Mart has built enough clout with suppliers that they can dictate the prices and go in and change suppliers manufacturing processes in order to wring out more and more savings for the consumer.

However, it is not always the case that all firms should develop vertical integration strategy to enjoy economic of scale. Firm like boutique or niche items that produces on a small scale are not suitable to implement as it will benefit less from vertically integrated mainly because the input demand for grow is small and due to exclusive nature their prices are inelastic as compare to industry like Oil and Gas Industry, Telecom, Media, automobile developed vertical integration strategy . The main advantage of the vertical integration is the increased control. For instance, Wal-Mart with large market share is attractive to supplier. Though Wal-Mart does not own asset specificity to produce product internally but there is a large market input outside and therefore Walmart is benefited by having bargaining power and gaining control over price and manufacturing process in order to wring out more and more saving consumer. On the other hand Walmart, performs distribution and retailing activities, it has more control over the way the product...
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