The idea of virtual integration is not new but something that has certainly caught the attention of management world is the way DELL has used virtual integration to create sustainable competitive advantage.
Historically, it was believed that a firm can capture majority of market value by using backward or vertical integration. Reliance India limited is a good example of a company that has effectively used backward integration. In essence, the point is that all part of value chain should be owned by 1 company to take maximum advantage.
However, DELL has proved that a firm can gain similar advantage as compared to backward integrated firms by strategically aligning all parties in a value chain such all these parties together are integrated. Hence the concept of virtual integration. Michael Dell has said in multiple interviews that his company's power comes from virtual integration that allows Dell and its partners to work together as a combined force.
With DELL as a test case, it is evident that virtual integration is a plausible strategy. However, after researching several scholarly journals etc. I have come to believe that all examples of virtual integration come from manufacturing or manufacturing related companies i.e. companies that are selling tangible products.
The question that I ask is can the same concept be applied to service industry. Can a financial service company leverage the concept of virtual integration ? - This is my current focus of research. Will publish my findings in the coming weeks/months.
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