Vertical Integration and R&D Information Flow

In explaining the reasons for the large number of mergers among multinational companies as well as small specialized businesses in recent years, the realization of potential synergies among the merging firms has often been pointed out. Synergy is a ‘Holy Grail’ of business strategy; many seek it but few actually succeed and most attempts at developing synergies meet at a non desirable fate. A global survey of A.T. Kearney (1998) concluded that after three years of a transaction the profitability of the integrated firm decreases by 10 % on average and 50 % of alliances in the USA fail within four years.
Nevertheless, it is particularly claimed that a vertical integration will enable the supplier to adapt his technology in a much higher degree to the needs of his customer than when he is separately owned . A world-wide study of Arthur Andersen elaborated on the factors which firms look upon when striving for merging with another company.