Advantages of vertical integration: bp

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What are mayor advantages and disadvantages of the actual vertical integration of BP?


1. One of the main advantages, probably one of the core BP reasons to purse the integrationis the advantage of leveraging from excess valuable resources (Teece, 1982) from each separate unit. This resources range from management expertise allowing cross management and knowledge transferamong different business units, to shared customer base, customer knowledge from the close relationship in retailing points and potential cross marketing efforts (e.g. points or customer loyalty rewardsshared with different brands). More over sequential adaptive decision making processes (Williamsons, 1985), can be achieved from expertise in distinct tiers of the industry. Other exploitableresources might be strategic long-term share of investments in exploration, R & D activities, and proprietary technology development; resources that can benefit the entire corporation.
2. Savings in TCalong upstream and downstream activities, achieved through reduction of contractual and monitoring costs (Williamson, 1975). One key feature of BP virtual integration strategy is that having businessunits serving markets at the same time that they supply internally reduces the transfer price issue and maintains efficiency of operations.
3. BP vertical integration has the advantage ofsupply assurance and the ability to manage high levels of uncertainty (Klein, Crawford, and Alchian, 1978). Constant price fluctuations in the oil industry, market pressures and other type of controls(like OTAN intervention), make this a very valuable advantage, avoiding dependence of supply from governmental owned crude oil and to deal with uncertain conditions due to likely unexpected situationsdriving demand (e.g. unexpected weather conditions, political issues among countries, or even economic
4. Real options come into existence when existing resources and capabilities come into...
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