Comparing Vertical Integration Strategies Break up into small groups of three to five people, appoint one group member as a spokesperson who will communicate your findings to the class, then read the following description of the activities of Seagate Technologies and Quantum Corporation, both of which manufacture computer disk drives. On the basis of this description, outline the pros and cons of a vertical integration strategy. Which strategy do you think makes most sense in the context of the computer disk drive industry? Quantum Corporation and Seagate Technologies are major producers of disk drives for personal computers and workstations. The disk drive industry is characterized by sharp fluctuations in the level of demand, intense price competition, rapid technological change, and product life cycles of no more than twelve to eighteen months. In recent years, Quantum and Seagate have pursued very different vertical integration strategies. Seagate is a vertically integrated manufacturer of disk drives, both designing and manufacturing the bulk of its own disk drives. Quantum specializes in design and outsources most of its manufacturing to a number of independent suppliers, including, most important, Matsushita Kotobuki Electronics (MKE) of Japan. Quantum makes only its newest and most expensive products in-house. Once a new drive is perfected and ready for large-scale manufacturing, Quantum turns over manufacturing to MKE. MKE and Quantum have cemented their partnership over eight years. At each stage in designing a new product, Quantum’s engineers send the newest drawings to a production team at MKE. MKE examines the drawings and is constantly proposing changes that make new disk drives easier to manufacture. When the product is ready for manufacture, eight to ten Quantum engineers travel to MKE’s plant in Japan to spend at least a month to work on production ramp-up.
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