Vertical Integration
Originally driven by capital markets seeking to limit volume risks and reward a focus on core competencies, vertical integration has seen a general decline in the course of the last few decades. This strategy was underpinned by dependable suppliers, rising productivity and, as a result, continually decreasing prices.
In the volatile market now in evidence, the pendulum is swinging back. Companies that still have access to raw materials through the last remnants of vertical integration find themselves better placed to compete in the marketplace than their trimmed-down rivals. Consequently, a renaissance of vertical integration can be observed in many industries, with customers buying suppliers. The primary objective is to secure availability of short capacities and access to scarce resources. In special cases, the motivation may also be an anticipated technological competitive advantage or the ability to gain access to new customer groups. Besides these primary effects, vertical integration may also provide benefits in terms of transactions, logistics, dealerships, and so on.
In addition to ensuring that the acquisition is commercially justified, it's important to always keep in mind that acquiring a supplier also means acquiring its customers. So in a roundabout way, the buyer can also become the supplier of its own competitors. If this new state of affairs causes competitors to stop buying, the newly acquired supplier may lose its business base.