The success of vertical integration is highly dependent on units’ ability to collaborate towards common goals. Deficiencies in coordinating and controlling the internal trading activities could imply that the benefits and the purpose of vertical integration are unutilised. Commonly owned companies that individually satisfy a certain stage in a production chain (i.e. vertical integration) aims efficiently produce full solution products. The goods are transferred through the production chain by trading internally, which stresses the importance of having efficient procedures for the internal trading, as well as properly determined transfer prices for the traded goods and services. Incorrect procedures and lack of management control could, among other factors, foster a behaviour that allows the subsidiaries to act as if independent and unaffiliated. Consequently, such organisational culture is hurtful to a group that is vertically integrated.

In this case study a Swedish engineering group, consisting by five subsidiaries, is examined with the intent of mapping and describe the issues that cause suboptimisations and inefficient internal trading, as well as highlight the most critical factors that needs adjustment or attention in order to improve the internal trading situation. The empirical findings of this case study have been compared to a theoretical framework, founded on underlying and related theories regarding vertical integration. The qualitative data was based on interviews with four Chief Financial Officers and two Chief Executive Officers of companies in the same group. The names of persons and companies will be held confidential.

The findings showed that the companies within this corporate group have highly decentralised relations to each other and are highly autonomous. Only one company is more controlled by top-management. Even though the companies have been united to exist in a vertical integrated group, the trading is still conducted as if the companies are independent of each other and with a lot of self-interest. There is a lack of standardised procedures, incentives, and expressed policies and guidelines from the top-management to encourage collaboration towards the aggregated goals and the group’s profit maximisation. The horizontal management style leaves too undefined frames for conducting internal trades with the focus on maximising the group’s profit. Hence, the internal trading is not optimal and sub-optimisation is likely to occur. The findings of the explorative and descriptive study call for the top-management’s attention and intervention. Two tools for controlling and improve the internal trade is by implementing either a Shared Service Centre or a transfer pricing method, together with motivating incentives.