Identify an example of vertical merger from the list below:

A bank in US merges with a call centre to save costs of customer care division

A bank in US merges with a call centre to save costs of customer care division.

A vertical merger occurs when two companies that are at different stages of the production process for a common good or service combine. In this case, a bank in the US merging with a call center is an example of vertical integration, as the bank is merging with a company that provides customer care services, which is a stage in the production process of banking services.

The other options are not suitable because:

• Option 1 : A leather shoes company merging with a pen manufacturing business is an example of horizontal integration, as the two companies are at the same stage of the production process (manufacturing) and are in different industries (footwear and writing instruments).
• Option 3 : A car assembly plant in Germany merges with Indian car assembly plant to gain entry in India is an example of horizontal integration, as the two companies are at the same stage of the production process (manufacturing) and are in the same industry (automotive).
• Option 4 : Two wheeler manufacturing business merges with a company making bi-cycles is an example of product extension merger, as the two companies are at the same stage of the production process (manufacturing) and are in the same industry (bicycles).

Vertical merger: A merger between two companies producing different goods or services for one specific finished product. A vertical merger occurs when two or more firms, operating at different levels within an industry's supply chain, merge operations. Most often the logic behind the merger is to increase synergies created by merging firms that would be more efficient operating as one.

Example: A vertical merger joins two companies that may not compete with each other, but exist in the same supply chain. An automobile company joining with a parts supplier would be an example of a vertical merger. Such a deal would allow the automobile division to obtain better pricing on parts and have better control over the manufacturing process. The parts division, in turn, would be guaranteed a steady stream of business. Synergy, the idea that the value and performance of two companies combined will be greater than the sum of the separate individual parts is one of the reasons companies merge.