Summary
This study examines the relationship between firm performance and the vertical integration strategies of 50 US computer hardware manufacturers. We propose that between-stage and within-stage vertical integration have differential effects on performance. Our findings indicate that in the computer hardware industry within-stage vertical integration is negatively related to performance. Between-stage integration is not associated with performance. These results suggest that the core extension benefits of within-stage integration may be outweighed by the costs to manage a wide breadth of activities in more than one value-added chain. The implications for future research are discussed.
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Extract
Vertical Integration and Performance in the United States Computer Hardware Industry
Introduction and Theoretical Background
Vertical integration is a crucial portion of corporate strategy as it often represents a firm's first attempt to diversify (Galbraith, 1983; Harrigan, 1985a). The relationship between vertical integration and its performance outcomes are unclear, however. Most research in this area assumes that firms vertically integrate to lower transaction costs (Williamson, 1975) and thereby increase performance (Harrigan, 1985a). But some research has shown that vertical integration may increase strategic inflexibility (Harrigan, 1985b) and systematic and bankruptcy risk (D'Aven...See the full content of this document
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