Vertical business concentration

economic-dictionary

The vertical business concentration is the union of two or more companies dedicated to the same sector, but located in different phases of production.

In other words, vertical business concentration is about a group of companies that are in charge of the different phases of production of the same final product or service and that are directed by the same directive.

For example, a company that produces shoes, another that is responsible for transporting shoes and finally a shoe store. The vertical concentration would be some union between these three companies.

What is vertical business concentration for?

Explained in a clearer way, to produce a product it is necessary for it to go through several phases: obtaining raw materials, transforming them, packaging, promotion, etc.

In many cases, companies are responsible for only one of these phases, buying and selling the product to suppliers and customers. But there is also the option for this company to be linked to its supplier company and / or its client company, which favors it in many aspects such as savings in intermediary costs, increased bargaining power, entry barriers to those faced by the competition, total control of the product in question, etc.

Example of vertical business concentration

Let's imagine that Enropados S.L. is a textile company dedicated to the production of shirts and pants.

  • It would be a vertical concentration, if Enropados S.L. was linked to the company that supplies the fabrics, zippers, brackets, etc., let's call it Telarius S.L.
  • also linked to Diseñs S.L. company dedicated to creating the designs and patterns of each piece,
  • and also linked to the company Itaca S.L. in charge of selling all the products created by Enropados S.L.
  • and finally there is Publiclothes S.L. in charge of the publicity and promotion of all the products produced by all these companies.

In this case, several companies dedicated to the textile sector work together, each one belongs to a different production phase and supplies the product to the next phase. In this way, it is possible to control all margins and set the price that works best at all times.

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