Vertical Integration and Contracting

Vertical integration refers to a company taking control of multiple stages of production or supply chain, from raw materials to final products. For example, a car manufacturer that owns a steel plant is vertically integrated. Contracting, on the other hand, involves companies outsourcing certain functions through agreements with other businesses, allowing them to specialize and reduce costs without owning every part of the process. While vertical integration brings control and efficiency, contracting can offer flexibility and access to specialized skills. Both strategies help companies optimize their operations and respond to market demands.