Business Integration is a strategy of expanding a companies profile into manufacturing or retailing based on company's current portfolio. There are a few integration strategies which we will discuss in this topic as mentioned below :
1. Forward Vertical Integration
2. Backward Vertical Integration
3. Horizontal Integration
FORWARD VERTICAL INTEGRATION
This can be defined as a business strategy that involves forward integration where in the company expands into direct distribution and sales of its products. An equipment manufacturer wants to retail their products through their branded stores instead of giving them to a third party retailer is a good example for forward integration.
A manufacturer would take this strategy for the below benefits :
- Have complete control on inventory movement from manufacturing to retailing
- Increase profit margins
- Pass on the benefits of portion of the retailer margin to end customers by retailing goods on competitive price
- Remove middle men to improve supply chain efficiency
- To gain better control on market and product segment
- To improve customer experience
- To better understand and fulfil customer needs
This is very effective in retail when manufacturer wants to open Category Killer stores.
Please refer to blog on Types of stores to understand category killers
BACKWARD VERTICAL INTEGRATION
This can be defined as a business strategy that involves backward integration where in the an organisation expands into manufacturing of its goods. A retailer wants to manufacture their products is a good example for backward vertical integration.
A retailer would take this strategy for the below benefits :
- Cut on additional margin cost levied by the manufacturer
- Improve the quality of the products
- Improve control on supply chain and timely supply of goods
- Become more competitive in the respective product segment
- Gain better control at times of higher demand for products in market
- Ensure hindrance free supply at times of shortage of component parts or raw material
HORIZONTAL INTEGRATION
This can be defined as a business strategy that involves expansion of business by acquiring other players in the same or similar field or discipline. A company acquires huge stakes in a competitor's company or takes over the competitor's company for the below benefits is known as horizontal integration :
- Increase the market share
- Enter new market
- Create a monopoly
- Gain better control over the product segment
But this strategy is quite risky for both the organisation and the consumers. A successfully monopoly could lead to disaster because of increase in product pricing and lack of competitors to stimulate innovation in the product line. If the take over transition has frictions leading to loss of talents and resources, this can cause huge damage and financial loss to the parent organisation.
1. Forward Vertical Integration
2. Backward Vertical Integration
3. Horizontal Integration
FORWARD VERTICAL INTEGRATION
This can be defined as a business strategy that involves forward integration where in the company expands into direct distribution and sales of its products. An equipment manufacturer wants to retail their products through their branded stores instead of giving them to a third party retailer is a good example for forward integration.
A manufacturer would take this strategy for the below benefits :
- Have complete control on inventory movement from manufacturing to retailing
- Increase profit margins
- Pass on the benefits of portion of the retailer margin to end customers by retailing goods on competitive price
- Remove middle men to improve supply chain efficiency
- To gain better control on market and product segment
- To improve customer experience
- To better understand and fulfil customer needs
This is very effective in retail when manufacturer wants to open Category Killer stores.
Please refer to blog on Types of stores to understand category killers
BACKWARD VERTICAL INTEGRATION
This can be defined as a business strategy that involves backward integration where in the an organisation expands into manufacturing of its goods. A retailer wants to manufacture their products is a good example for backward vertical integration.
A retailer would take this strategy for the below benefits :
- Cut on additional margin cost levied by the manufacturer
- Improve the quality of the products
- Improve control on supply chain and timely supply of goods
- Become more competitive in the respective product segment
- Gain better control at times of higher demand for products in market
- Ensure hindrance free supply at times of shortage of component parts or raw material
HORIZONTAL INTEGRATION
This can be defined as a business strategy that involves expansion of business by acquiring other players in the same or similar field or discipline. A company acquires huge stakes in a competitor's company or takes over the competitor's company for the below benefits is known as horizontal integration :
- Increase the market share
- Enter new market
- Create a monopoly
- Gain better control over the product segment
But this strategy is quite risky for both the organisation and the consumers. A successfully monopoly could lead to disaster because of increase in product pricing and lack of competitors to stimulate innovation in the product line. If the take over transition has frictions leading to loss of talents and resources, this can cause huge damage and financial loss to the parent organisation.
No comments:
Post a Comment