Difference Between Outsourcing And Vertical Integration

1. How are outsourcing and vertical integration related? Can a single firm successfully do both?
This essay is an exploration of how outsourcing and vertical integration are related, and whether a firm could successfully accomplish both. Firms utilize vertical integration or outsourcing to claim ownership over the processes of production. The two are different in many ways, but they also relate to one another in some aspects. A firm, using both vertical integration and outsourcing, can achieve superior performance. Whether the firm uses vertical integration or outsourcing, the firm will need substantial resources, build a large network, and create strategies and alliances.
Vertically Integrated Firms strive to decrease expenses and reduce turnaround for their products and customers; they strive to save the company money by keeping processes and procedures within the company. They do this by purchasing a company which performs different stages of production for the company. For example, Apple is mostly vertically integrated. Not only does the company sell its own products by exclusively selling through Apple stores, but it manufactures its own products after purchasing the manufacturing companies and making them part of the Apple family. This minimizes transportation costs, as well as …show more content…
These two methods are very effective in improving company efficiency and lowering expenses on one side of the scale or the other. Some companies prefer to use vertical integration to save costs on labor and capital resources, while other companies prefer to use outsourcing a significant amount of company tasks, functions, and processes, to focus more on daily operation, lower cost structure, and increase differentiation. Bringing these two methods together, while effectively creating strategic business relationships and contracts, will give a company maximum profitability and competitive