Which scenario best illustrates vertical integration?

Which scenario best illustrates vertical integration?

• A. A company that only imports diamonds
• B. A company that outsources processing
• C. A company that controls mining, processing, and distribution of its diamonds
• D. A company that only sells to retailers

Answer: (C)

Vertical integration happens when a company owns and controls several steps in its production and distribution of a product, from raw materials through processing to final sale. In this scenario, the company controls mining (the raw material), processing (the value-added steps), and distribution (getting the diamonds to customers). That full span of ownership and control across the supply chain is the best illustration of vertical integration because it eliminates reliance on outside firms for multiple stages and keeps value creation under one umbrella. The other options show focusing on a single stage or outsourcing: - Importing diamonds only means handling sourcing from outside without owning the mining or processing stages or the distribution channel. - Outsourcing processing means the company relies on an external firm for a key step, so it doesn’t own that part of the chain. - Only selling to retailers covers distribution but does not include ownership of upstream (mining) or the processing steps. So, owning mining, processing, and distribution demonstrates complete control over the major steps of the supply chain, which is the essence of vertical integration.

Vertical integration happens when a company owns and controls several steps in its production and distribution of a product, from raw materials through processing to final sale. In this scenario, the company controls mining (the raw material), processing (the value-added steps), and distribution (getting the diamonds to customers). That full span of ownership and control across the supply chain is the best illustration of vertical integration because it eliminates reliance on outside firms for multiple stages and keeps value creation under one umbrella.

The other options show focusing on a single stage or outsourcing:

• Importing diamonds only means handling sourcing from outside without owning the mining or processing stages or the distribution channel.

• Outsourcing processing means the company relies on an external firm for a key step, so it doesn’t own that part of the chain.

• Only selling to retailers covers distribution but does not include ownership of upstream (mining) or the processing steps.

So, owning mining, processing, and distribution demonstrates complete control over the major steps of the supply chain, which is the essence of vertical integration.