Vertical integration and horizontal integration are business strategies that companies use to consolidate their position among competitors.
Horizontal Integration:
It is a business expansion strategy that involves a firm acquiring another company operating at the same business line or the same level of the value chain. It takes over the firm with the same or similar product line so as to eliminate competition. This means both companies offer similar goods and services, and deal with an almost the same customer base.
Objective: Increasing the size of the business and maximise market share
Consequence: Minimises competition and increases Revenue
Examples: Acquisition of Instagram by Facebook and Burger King by McDonald’s.
Vertical Integration:
It is a business expansion strategy that involves a firm acquiring various entities operating at different value chain stages to take complete control over one or more stages in the production or distribution of a product. This occurs when one company acquires a producer, vendor, supplier, distributor, or other related company within the same industry (acquiring preceding or succeeding processes of a company)
Objective: Strengthening the supply chain, minimise cost and wastage of products at various levels
Consequence: Improves operational efficiency
There are three types of Vertical Integration.
Forward Integration: If the company acquires control over distributors, it is called downstream or forward integration.
For instance, a car manufacturer opens its own showrooms to sell its vehicle models or provide after-sales service
Backward Integration: If the company acquires control over its supplier, it is called upstream or backward integration.
For instance, a supermarket may acquire farms or its operations to ensure the supply of fresh vegetables
Balanced Integration: It is a judicious mix of both backward and forward integration strategies.
Comentarios