Is it a wise decision?
De Beer made a wise decision in using forward integration and establishing “De Beers Diamond Jewellers Ltd”. Since the new company was established, it has led to establishment of many other stores in different countries. It is a wise decision because the company will have more control on value chain, production and distribution (HARRIGAN, 2003 p. 3). The decision of vertical integration is best in that the company will control the cost in the distribution process. A single entity is important in that De Beer will optimize the utilization of resources and minimize the cost of transportation. The important part of the decision is that the company will enjoy the competitive advantage by directly entering in the competitive market and accessing customers (HARRIGAN, 2003 p. 4). On the same note, competitive advantage will be as a result of product innovation. It will be easy to generate products with respect to the technological changes. Given that the ‘mother’ company has more than 100years experience, it will assist the new companies with technological skills and ensure that they meet the customers’ need by selling beautiful diamond. The important thing is that the new companies will sell products under the brand name ‘De Beers’. The vertical monopoly is important mostly in driving demand. Note that forward integration creates a ‘supply of choice’ and the company is able to choose associates and customers who will abide with the principles (HARRIGAN, 2003 p. 4). Rather than focusing on demand with prior practices, the company made a wise decision to meet demand through vertical integration. The company will be able to conduct product differentiation and produce different products for specific markets. The different products will meet all needs locally and across the borders. In others words, the established companies will develop specialized assets and a high level of certainty.
Work cited
HARRIGAN, K. R.(2003). Vertical integration, outsourcing, and corporate strategy. Washington, D.C.,
Beard Books.
