The Vertical, Backwards Integration & A Keiretsu Model:

Vertical, Backwards, and a Keiretsu are forms of Value Chain Integration.

All concepts by design focus on concepts and business models that improve the integration of the value chain improvements.

Vertical Integration:

Vertical integration is the merging of two or more businesses or technologies that are at different stages of production and add mutual value.

Vertical integration places a company in a robust position to increase capabilities.

We mentioned earlier that vertical integration is the merging of two or more businesses or technologies that are at different stages of production and add mutual value.

For example, one company produces fabrics and the other makes seats so they may merge companies or technologies for a greater degree of integration.

Backwards Integration:

Merging with something further back in the process is known as backward integration.

The integration of two organizations that are in completely different lines of business is sometimes referred to as conglomerate integration.

Businesses are downstream or upstream of each other depending on whether they are nearer to or further away from the final consumer.

Keiretsu:

Keiretsu is a group of companies that have mutual benefits in what they produce.

A vertical keiretsu is one of the two primary types of keiretsu relationships that exists, for example Mitsubishi can produce airplanes and also have a separate company that produces the seats that are installed in the airplane.

Although they are separate companies they integrate components they can sell intercompany.

In this vertical keiretsu model, one or many companies are created in order to benefit a single, greater manufacturer or parent company.

These are most commonly seen with large manufacturers such as Toyota and Honda.

The vertical model has a number of tiers.

Major suppliers are on the secondary tier, and smaller manufacturers are on the third or fourth tier.

I’ve always had an interest how in Japan companies have created these business model successfully.

Since they can support each other as well as create synergy and cost savings within the entire value chain of a final product.