What does the term "vertically integrated" signify in a business context?

In a business context, "vertically integrated" refers to a company's strategy of controlling multiple stages of production along its supply chain. This means that a vertically integrated company manages not only its manufacturing processes but may also oversee raw material acquisition, processing, and distribution directly within its organizational structure. By doing this, the business can enhance efficiency, reduce costs, and increase its control over the supply chain, thereby potentially improving its margins and market competitiveness.

For example, a car manufacturer that produces its own parts instead of relying on third-party suppliers embodies vertical integration. This integration allows the company to ensure quality, optimize production schedules, and maintain a steady supply of components essential for assembly.

Other choices do not clearly define vertical integration. Outsourcing production would involve a different approach, where the company relies on external providers to execute certain processes. Employing a single production method across all products does not capture the essence of integrating different stages of production. Finally, selling the business to a larger corporation represents a completely different strategic action that does not relate to controlling production processes.