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Corporate level Strategy
Vertical Integration
Large companies are often involved in many different kinds of businesses and sellproducts in many different countries. So far we have identified that IKEA has been usingVERTICAL INTEGRATION to the Global furniture industry. Managers use corporate levelstrategy in VERTICAL INTEGRATION to identify which industries their company shouldcompete in to maximize its long run profitability. There are two types of vertical integration:1. Forward vertical integration2. Backward vertical integration.So far we found that IKEA using backward vertical integration to expand their businessand to make profit. Here are some benefits of IKEA to have vertical integration.
Facilitating investment in specialized assets
A specialized asset is one that is design to perform a specific task and whose value is
significantly reduces in its next best use. Here IKEA’s specializes asset is employees skills that
employees acquired through training and experience. IKEA invested in specialized assetsbecause it allowed it to lower its cost structure and differentiate their product.
Enhancing product quality
By entering industries at other stage of the value added chain, IKEA enhanced the quality of theproduct in its core business and so strengthen its differentiation advantage.
Improved scheduling
Strategic advantage has been obtained when vertical integration makes it quicker, easier, andmore cost effective to plan, coordinating, and transfer of product like finished goods frommanufacturing plant to retail or distributing shop.
Increased Bargaining Power
IKEA used VERTICAL Integration because it allows them to obtain bargaining power oversuppliers and increased their profitability. By consolidating the industry through VERTICALIntegration IKEA has become a much larger buyer of suppliers
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product and use this as leverageto bargain down the price IKEA pays for its input, there by lowering its cost structure.