Vertical integration
Vertical integration is where the company can create a competitive advantage by integrating different stages of its production process. Horizontal integration is the process of a company increasing the production of goods and services in the same part of the supply chain.
The number of firms – no supplier that can change the company monopoly prices for the coffee shop ingredient, so it is not wise to consider vertical integration.
The use of Economies of scale and scope- it is cost-effective for the company to come up with ingredients used to make coffee to avoid vertical integration.
The scope for opportunism- the supplier- cannot sell below-par the coffee ingredients, so we don’t need vertical integration.
Uncertainty- the ingredients for coffee may be uncertain due to weather and climate factors, so we do not need vertical integration.
Asset specificity- the ingredients for making coffee can be used for making other drinks, so we don’t need vertical integration.
Firm-specific knowledge- the ingredient for making coffee is not a trade secret, so we do not need to integrate.
The complexity of production- the integration for coffee shops does not require specification and does not need complicated contact, so we should not integrate vertically.
The chain can horizontally integrate by introducing other coffee products such as flavored coffee. The products can be sold more competitively by submitting the company’s resources, allowing the company to dominate the market.