Factors considered in using vertical integration strategy: the case of manufacturing firms in Kenya

Abstract

The survey for this study reported here was carried out between March and July, 1992. The principal objective of the study was to identify the factors that the management of vertically integrated firms consider in making their decision to integrate either backward or foward. In order to meet this objective, the information sought for the study was collected through the use of a questionnaire. The sample consisted of 52 vertically integrated firms. 31 questionnaires were completed and provided the information used in this report. The study found out that many factors influence the firm's decision to adopt vertical integration strategy. For all the manufacturing firms, the most important factors were: certainty of demand for the firm's products, availability of ad-equate manufacturing facilities, investment costs, and the need for .high market share. Analysis of the data by industry revealed that for the textile and steel manufacturers, certain factors were important The factors were: the need for improved co-ordination for a firm's activities, need for synergies, need for greater control over the firm's economic resources, level of competition in the industry, size of the business, and stability of future costs . For the agro-based industries and the mining-firms, the need to control the firm's economic resources, the need to build new infra-structures, size of business, and the level of competition in the industry were important. It is appreciated that much remains to be done towards developing models that can be suitably used for empirically testing these factors to see their influence on such firms The study suggests that further research is needed to determine whether vertically integrated firms perform better than those firms that are not.