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Some companies are migrating upstream: Take Netflix and Amazon getting into the original programming business and Harry's (a U.S. start-up that sells men's razors and shaving cream by monthly subscription) acquiring a factory in Germany to make its own razor blades.
Others are integrating downstream. Consider Apple owning and operating a retail chain to sell its own products and Google launching a wireless telecom network in the United States. Some companies are even doing both. Tesla, for instance, is bypassing traditional dealerships to sell its cars directly to the consumer while also building the world's largest battery plant.
Many non-tech companies are also pursuing vertical integration. Ferrero, the chocolate company, made its first-ever acquisition in 2014 - buying a Turkish company that processes hazelnuts, the precious ingredient in Nutella, its world-famous chocolate spread. Howard Schultz calls Starbucks's business model "vertical integration to the extreme," because the company buys and roasts all its own coffee and sells it through entirely company-owned stores.
Back in 2012, Delta Air Lines bought a refinery to have its very own source of aviation fuel. There’s even a growing trend of pension funds bypassing private equity funds by setting up their own internal shops to do private equity investments on their own.
Are all these modern forms of vertical integration good strategies? Yes, if two special conditions are met.
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