Vertical integration: Panacea, or just a pendulum swing?

Vertical integration is hot as companies look to combine hardware and software (Oracle and Sun) as well raw materials and manufacturing (steelmaker Arcelor) and other PepsiCo (beverages and distribution). But is it really a panacea?

The Wall Street Journal chronicles the most recent pendulum swing. The Journal notes:

The moves toward vertical integration are a departure from the past half-century, when companies increasingly specialized, shifting functions like manufacturing and procuring raw materials to others. Steelmakers in the 1980s sold their mining operations; in the 1990s, auto giants spun off their parts suppliers. Tech companies stopped making every piece of a computer system and specialized in chips, data storage or software.

The rub: The story is based on roughly eight examples. We're not headed back down the road of conglomerates yet, but there does seem to be a move toward more vertical integration. However, rest assured that if these vertical moves don't work we'll be looking at breakups and spin-offs again.

More: BNet resources on vertical integration.

This post was originally published on Smartplanet.com