Which of the following is an example of vertical integration? Multiple choice options listed below.
a. An industrialist building new plants in a country where operation costs are low. b. A cosmetic company collaborating with worldwide retailers to market its product. c. A fruit juice manufacturer purchasing orchards. d. An exporter delivering goods at a contracted price.
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Of the options that you have given us here, the best answer is C. If a fruit juice manufacturer purchases orchards, that is vertical integration so long as the orchards grow a type of fruit that the manufacturer actually uses to make juice.
Vertical integration occurs when a firm buys another firm that is either up or down its supply chain. In this case, an orchard is part of the supply chain of the juice company. The company buys fruit to make into juice. Therefore, when it buys the orchard, it is buying another firm that is lower down its supply chain.
B would be a plausible answer, but there is no actual purchase going on there. The stores are not buying the cosmetic company or vice versa. Therefore, even though they are part of the same supply chain this is not vertical integration.
An example of vertical integration is B: A cosmetic company collaborating with worldwide retailers to market its product.
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