Vertical integration is a manner of organizing the supply chain of a company, in which the firm owns the facilities where the different parts of the production process are performed (obtention of raw materials, intermediate transformations, final transformation, etc), instead of buying intermediate goods or raw materials from suppliers, to subsequently produce their own products.
Vertical integration requires extremely high levels of investment, but if a firm can afford to follow this strategy, it will experience a drastic cost reduction and productivity improvements in its production process. Vertical integration enhances the produdction capacity of a firm, and allows it to reach economies of scale.
