American Apparel's Vertical Integration Strategy

This assignment examines the role of vertical integration in American Apparel's overall business strategy. It discusses both tangible and intangible factors influencing their implementation of forward and backward vertical integration. The analysis explores the benefits of this approach, such as increased speed, elasticity, innovation, and customer responsiveness, while also considering potential drawbacks like high capital investment and vulnerability to economic fluctuations.

Running head: BUSINESS MANAGEMENT AND STRATEGIC MANAGEMENT
Business Management and strategic management: American Apparel
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Author’s note

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What role does vertical integration play in American Apparel's strategy in terms of both
tangible and intangible factors?
Founded in 1898 American Apparel has come a long way in the garment industry, the
company has expanded and grown with the dynamic of the business environment and has gained
goodwill from all the stakeholders. The company is based out of los angles and vertical
integration has been a significant part of its operational strategy1.
Vertical integration is the process of by which a business organization increase and
improve its operations. It involves dividing the same production path into various steps. The
process of supply chain is owned by the company at various levels. For example: when the
company produces both the end product as well as the required raw material. The supply chain
involves four stages: commodities, manufacturing, distribution and retail. This process helps the
company reduce the cost of production and manufacture as well as increase the efficiency of the
resources by implementing multiple usages2.
The company has also established itself as a successful multinational company and owns
more than 270 retail stores in 20 countries all around the world. One of the most unique features
of American apparel is that it is a company in the fashion industry that has implemented both
forward and backward vertical integration a central part. The decision of the management plays
an important role in the operation as well as earning the revenue for the company. The
organization does most of the work in the line of production starting from cutting of the fabric
1 Fulton, Katelyn, and Seung-Eun Lee. "Assessing sustainable initiatives of apparel retailers on the internet." Journal
of Fashion Marketing and Management: An International Journal17.3 (2013): 353-366.
2 Rangrang, B. A. I., and T. A. N. Shiyu. "R&D Mode, Vertical Integration and Innovation Performance of
Indigenous Brand in the Introduction Period." Journal of Management 4 (2016): 007.

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and sewing it, it also owns several knitting and dyeing services in Southern California. American
apparel also owns a distribution warehouse, a wholesale operation. The designing of the
garments and the promotional strategies of the company are formulated and implemented is
carried out by the company. Starting form advertising, photography and clothing models are
from the resources that the company owns.
The advantages are that the business operation using vertical integration achieved
extraordinary speed and elasticity as well as in any kind of policy making and decision making
process. This process also enables the company to be more innovative in terms of design and
fashion trends. It also helps the company to meet the requirements of the customers before the
competition. Vertical integration is the process which also reduces the product development
cycle3.
One of the biggest disadvantages of the process it that it engages a significant amount of
capital and also it shifts the focus of the business which may have an impact on the quality of the
product or service. If there are some significant changes in the economy like depression then the
company will face a huge set back.
Therefore, the tangible factors impacting the vertical integration are firstly the resources
like factories, facilities, warehouses etc of the company and the stakeholders like the employees
and the managers of the company also has an important role. Some of the intangible factors are:
motivation, talent acquisition and organization of implementation of the strategy of vertical
integration are responsible for the success of the process4.
3 Lahiri, Nandini, and Sriram Narayanan. "Vertical integration, innovation, and alliance portfolio size: Implications
for firm performance." Strategic Management Journal 34.9 (2013): 1042-1064.
4 Orefice, Gianluca, and Nadia Rocha. "Deep integration and production networks: an empirical analysis." The
World Economy 37.1 (2014): 106-136.

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Reference list:
Fulton, Katelyn, and Seung-Eun Lee. "Assessing sustainable initiatives of apparel retailers on the
internet." Journal of Fashion Marketing and Management: An International Journal17.3 (2013):
353-366.
Lahiri, Nandini, and Sriram Narayanan. "Vertical integration, innovation, and alliance portfolio
size: Implications for firm performance." Strategic Management Journal 34.9 (2013): 1042-
1064.
Orefice, Gianluca, and Nadia Rocha. "Deep integration and production networks: an empirical
analysis." The World Economy 37.1 (2014): 106-136.
Rangrang, B. A. I., and T. A. N. Shiyu. "R&D Mode, Vertical Integration and Innovation
Performance of Indigenous Brand in the Introduction Period." Journal of Management 4 (2016):
007.