Example of Vertical Integration
Hisham Albuolayan, Analyst, Saudi Arabia, Member
We need to identify the value-chain of our business, then identify the applicable vertical/horizontal integration.
An example is a company that produces and sells Polypropylene products
. They need the Propylene as an input. They can buy it, but this will incur extra costs like the profit margin of the producer, transportation cost, customs (if exported), etc. Also the suppliers will have power on them.
Due to the above, it could consider to build its own production line for the Propylene to supply itself and in the same time it can sell any excessive quantities to third parties and perhaps make a little profit too.