I’ve never been a fan of outsourcing as it means losing control, despite what suppliers promise in their Service Level Agreements (SLAs). Outsourcing is part of (horizontal or vertical) disintegration. I need, want and believe in (self-) control, even while knowing that it’s an illusion in certain circumstances.
In 1983, a Harvard Business Review article wondered: Is Vertical Integration Profitable? See both views in this quote: “While some observers claim that adequate vertical integration can be crucial to survival, others blame excessive integration for causing corporate failure.” Hence, survival vs failure.
The 1983 quote above shows the lack of systemic risks since WWII. Outsourcing becomes feasible in such an environment. The corona pandemic (2019-2022) changed the perspective on systemic risks. Hence, recent articles (see below) claim that vertical integration is back.
On 12 January 2022, Stephen Mihm, a history professor and Bloomberg Opinion columnist, wrote this Bloomberg Opinion: “Vertical Integration Is Making a Comeback at U.S. Companies”. “Nineteenth-century business innovators like Andrew Carnegie bought up suppliers and controlled all stages of production. Twentieth-century CEOs slimmed down. Then came Covid.”
Also see this recent 2023 Bloomberg newsletter: “In an interview with Bloomberg Television, Jim Farley [CEO at Ford] boiled it all down to one theme: vertical integration. Much like Henry Ford sought out self-sufficiency and wanted to source and steer all the resources he needed to produce automobiles, Farley sees value in reversing decades of outsourcing and doing more in-house.” Note: markings and URL by LO.
In my view, decoupling (USA) and/or de-risking (Europe) is a Western answer to newly identified systemic risks (eg, China-Taiwan, Russia-Ukraine, pandemics, zero-Covid). Hence, vertical integration is likely to increase in order to mitigate business risks (eg, lack of supply).
Once systemic risks will be forgotten again, outsourcing will be the new kid in town again (lyrics, video).
“Integration is a basic law of life; when we resist it, disintegration is the natural result, both inside and outside of us. Thus we come to the concept of harmony through integration.”
A quote by Norman Cousins (1915-1990), an “American political journalist, author, professor, and world peace advocate”
Self Control (1984) by Laura Branigan (1952-2004)
artist, lyrics, video, Wiki-artist, Wiki-song
Note: all markings (bold, italic, underlining) by LO unless in quotes or stated otherwise.
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