Vertical Integration - Vertically Integrated

What is vertical integration? And what does it mean to you?

An organization is said to be vertically integrated when it either owns or forms alliances with its "upstream" and "downstream" vendors and distributors, from point of origin to point of sale, and in some instances through the point of reselling. To become vertically integrated, a supplier, wholesaler, or distributor usually purchases one or more of its suppliers or one or more of its distributors. The more points of distribution or suppliers owned by a single entity or group of commonly held legal entities, the more vertically integrated the company is said to be.

Vertical integration is not a new concept, it has in fact been at the heart of marketing theory (and the American economy) for decades. I recall my grandmother telling me a story about vertical integration when she proclaimed Henry Ford a "brilliant man who funded his suppliers, built his distributors, and lobbied to replace horse trails with horseless wagon two-tracks".

Ten years ago, companies formed "strategic alliances", which were for all intents and purposes a more glorified name for a vertical integration through a selection process for preferred vendors, a "tying" of selected vendors, and pricing points for gross amounts of business allocated into those companies who were privileged to be a strategic partner.

No, vertical integration is not a new concept. Just last month, Google bought yet another company along its vertical path.

Vertical integration has its upside, as well as its downside. To its benefit, it provides the means by which a product begins as a tree in the forest and ends as the box end on a saltine cracker box having integrated along the way its many counter-partners not the least of which were the mills in Munising, Michigan, the press rollers in Green Bay, Wisconsin, the glue factory in Appleton, Wisconsin, and the printing press in Neenah, Wisconsin.

It is at the moment when one of those links is severed, when the product is imported rather than manufactured in the United States, or when the entire process is outsourced that the U.S. economy begins a fatal deterioration. Or perhaps that statement should be made in the past tense.

The manner in which the term "vertical integration" is used in politics today refers to a political movement of integration from the White House to the corner store. If it becomes anything near the powerhouse of homeland security and the right to ease drop with judicial review, then it likely will have the same benefits as the current or past political managers have seen/done.

However, if the term "vertical integration" is meant to infer growth in privatization in the United States, then perhaps it might be an answer to a problem that is yet - according to Greenspan - still unfolding.

Before you veto vertical integration, consider its roots, and what it meant to the U.S. a mere ten years ago. At that time, it meant the Kimberly-Clark's of the U.S. were forming alliances with providers in the U.S., not outside of the U.S. It meant GM engaging in labor talks without labor unions (forgive me Father - he was a Union Steward) for the purpose of forming alliances between the people "on the field" (i.e. blue collar workers) and the people in the boxes (i.e. the managers) without penalties. It meant streamlining production, cutting costs, reasonable profits, and a product produced by and for residents of the United States.

Before you veto integration along the vertical production of goods, look about your surroundings and count the number of manufacturers in the United States, ask what the gross domestic product ran over the past ten years - then compare it to that of Germany.

Vertical integration is not a four letter word. It is the means by which the United States may privatize its production. Why? You ask, do I use the term "privatize"? Because production in the United States is not privatized any longer; it is internationalized. Privatization means ownership by the inhabitants of the country, rather than its government. But what is difference between the means of production upon which a country thrives - and survives - being owned by an international - and non-US - company and it being controlled by a government that redistributes the wealth back to the multitudes? When production becomes internationalized, when imported goods exceed exported goods, when the economy goes global, so does poverty. And folks: poverty expands into wealth like heated molecules into frigid air.

Perhaps it is time for companies in the United States to form alliances and to build their nationalized strength - that is vertical integration at its best.

And what does vertical integration mean to you? After all, you cannot buy a court (or at least you shouldn't be doing that sort of stuff), and you cannot buy your advertising agent, but you can form alliances with those who "serve" you and with those you "serve" to better the process through which you achieve your firm's goals. As was true of strategic alliances ten years ago, it means being accountable to your upstream, as well as your downstream. It means taking responsibility for outcomes. Business is never "just business".

^.com^