What does "Vertical Integration" refer to in business?

Vertical integration refers to a business strategy in which a company seeks to control multiple stages of production and the supply chain. This can include owning suppliers, manufacturing facilities, and distribution channels. By integrating these various stages, a company can reduce costs, improve efficiency, ensure quality control, and gain a competitive advantage by consolidating its processes.

For example, a company that produces furniture might engage in vertical integration by not only manufacturing the furniture but also owning the forests where the wood is sourced and the transportation services that deliver the final product to retailers. This way, the company minimizes reliance on external suppliers and has greater control over its production and distribution process.

The other options provided don't accurately describe vertical integration. Outsourcing refers to contracting out production to other companies, which is contrary to the idea of controlling production stages. Horizontal market expansion involves a company increasing its presence in the same stage of production, rather than integrating different stages. Employee profit-sharing is unrelated as it pertains to compensating workers rather than managing production relationships.