Companies like Volkswagen and Hermès adopted vertical integration in their business with the aim of long term benefit and staying competitive.
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Image: Leathercraft Masterclass

Most businesses conform to economic theories such as production efficiency and retaining manufacturing profit margins. Companies buy out its external suppliers or make long-term deals as it sees the importance of achieving high-level growth through acquiring external parties. This acquisition reassures companies that production capacity is maximised. Companies such as Volkswagen, Prada and Hermès have incorporated forward and backward vertical integrations for further growth and stability within its own markets. Also, this strategy would help the industry leaders be a frontrunner when competing with the others.
Economies of Scale: Production Efficiency & Quality Control

When luxury companies lower its per-unit fixed cost, ?economies of scale? is achieved. This is done through consolidating manpower, optimising operations and eliminating intermediaries where expensive markups tend to be present.

While most fashion companies outsource raw materials to third parties, Hermès go to great lengths and keep the process in-house wherever possible as quality and heritage are of utmost importance for the Maison. A reason why the French luxury leather goods maker pays special attention to securing ...