Vertical integration and the portability of skill sets in high tech industries

Abstract

Some companies use vertical integration to enter higher growth businesses and gain higher margins. Attractive business opportunities often appear just beyond one's stage in a value chain, leading companies to grasp for another stage's profits. However, the skill set one builds in a particular stage of a high tech value chain is often not portable to another stage in the same chain, offering a potential pitfall to those who seek to vertically integrate. This thesis explores the experience of one company's efforts to integrate vertically to capture profits enjoyed by their customers. Through a lack of appreciation for the complexity of the downstream manufacturing operations and a lack of portable competence, the firm failed to gain the hoped for revenues. Additionally, by focusing on new businesses, this company also lost some of the competence they had in their traditional business.