Vertical integration

Vertical integration is when two businesses at different stages of production join to form one bigger company. Anything that moves a company towards the the start of the production process is ‘upstream’ or ‘backward’ integration. Anything that moves it closer to the final customer is ‘downstream’ or ‘forward’ integration.

In the oil industry, the likes of BP and Shell started off upstream – looking for and extracting oil. They then moved downstream by buying refineries (to turn the oil into products) and petrol stations to sell finished products to customers.

Vertical integration can give a company more control over costs and quality. But when business is slow it can leave them with lots of assets that aren’t paying their way.

Merryn

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