Understanding Concepts

Key Concepts of the Chapter

Vertical integration is a key concept from the chapter and is a strategy whereby a company owns or controls the supply chain from end to end. In other words, the company produces its own inputs, instead of relying on suppliers. The benefit of this is that it gives the company greater control over its costs and production process, as well as greater flexibility to respond to changes in customer demand. However, another important concept is outsourcing and this is really the opposite of vertical integration. It is the process of contracting with a third party to provide goods or services. Typically, outsourcing arrangements are made with companies located in other countries, in order to take advantage of lower labor costs or other benefits. While outsourcing can help businesses reduce costs and improve efficiency, there are also some risks associated with this practice. For example, outsourced workers may not have the same level of skills or commitment as in-house employees, and there may be communication difficulties due to cultural differences. In addition, businesses that outsource too much risk becoming too dependent on their contractors, which could lead to problems if the relationship is terminated. That is why some companies prefer vertical integration.

There are two main types of vertical integration to know that are important to this key concept: backward and forward (Lin et al., 2014). Backward vertical integration occurs when a company acquires its own suppliers. For example, a textile manufacturer might buy a yarn producer. Forward vertical integration occurs when a company acquires its own distributors or retailers. For example, a clothing retailer might open its own factories. In short, vertical integration can be an effective way to increase efficiency and reduce costsbut it has some risks, such as angry suppliers and a loss of focus on the core business.

Other key concepts from the chapter include the four basic growth strategies: market penetration, product development, market development, and diversification. Market penetration is when a company focuses on selling more of its existing products to its existing markets. Product development is when a company creates new products for its existing markets. Market development is when a company sells its existing products to new markets. And finally,...

…merger of Pearle divisions. Luxottica would later merge with Essilor to become the biggest optical company in the world. GrandVision on the other hand is set up so that subsidiaries are close to their own markets. What can be concluded from each is that GrandVision is more decentralized by Luxottica is more centralized in terms of external investors having power.

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GrandVision competes in its market by expanding through subsidiaries, which are established in their own markets. GrandVision essentially supports the operations of the smaller subsidiaries by providing infrastructure as the parent companybut it does not interfere with the operations of its subsidiaries.

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GrandVision adds value for its portfolio by ensuring that its subsidiaries have adequate infrastructure to obtain supplies for production. It also ensures that products can get to market in a competitive field. It acts as both foundation and roof for its brands.

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GrandVisions future strategy should be to continue to promote its brands and to look for new companies that can be purchased so as to expand. Continuing to diversify is important. This is the case as competition grows, and new fields need to be conquered or created…