Horizontally integrated business planning
Horizontal integration examples
Credit: strategicmanagementinsight. This ensures the manufacturer it has a steady supply of tires in order to keep making its cars. Concerns A major concern of vertical integration is that it requires your company and its leadership to have expertise in multiple distribution channel activities. The decision whether to employ vertical or horizontal integration has a long-term influence on the business strategy of a company. In order to prevent monopolies, horizontal integrations are subject to anti-trust laws in the United States. The quality of goods supplied earlier by external sources may fall because of a lack of competition. A company can think of acquisitions and mergers for horizontal integration in the following situations: When the industry is growing When rivals lack the expertise that the company has already achieved When economies of scale can be achieved When the company can manage the operations of the bigger organisation efficiently, after the integration Advantages of horizontal integration The advantages of horizontal integration are economies of scale, increased differentiation more features that distinguish it from its competitors , increased market power, and the ability to capture new markets. Several factors affect the decision-making that goes into backward and forward integration. The strategy helped Carnegie produce cheaper steel, and empowered it in the marketplace. Kokemuller has additional professional experience in marketing, retail and small business. Compare Investment Accounts. The purpose of horizontal integration HI is to grow the company in size, increase product differentiation, achieve economies of scale, reduce competition or access new markets. This company can smoothen its supply chain by ensuring ready supply of tyres and electrical components in the exact specifications that it requires make its distribution and after-sales service more efficient by opening its own showrooms absorb for itself upstream and downstream profits profits that would have gone to the tyre and electrical companies and showrooms owned by others increase entry barriers for new entrants by being able to reduce costs through its own suppliers and distributors invest in specific functions such as tyre-making and develop its core competencies Disadvantages of vertical integration But what is the downside? Disadvantages of horizontal integration strategy As touched upon earlier, the management of a company should be able to handle the bigger organisation efficiently if the advantages of horizontal integration are to be realised. Vertical integrations can help boost profit and allow companies more immediate access to consumers.
Compare Investment Accounts. A classic example is that of the Carnegie Steel Company, which not only bought iron mines to ensure the supply of the raw material but also took over railroads to strengthen the distribution of the final product.
This not only gets the manufacturer closer to the consumer, but it also gives the company more revenue. Vertical Integration in Strategic Management Types of vertical integration strategies As we have seen, vertical integration integrates a company with the units supplying raw materials to it backward integrationor with the distribution channels that carry its products to the end-consumers forward integration.
By merging two companies that operate in the same supply chain together, it can cut down on competition, thereby reducing the choices available to consumers. Retail stores that sell private label, or store brands, engage in this form of vertical integration.
Forward Integration In many cases, a company expands from a single trade focus to become vertically integrated. There is a third type of vertical integration, called balanced integration, which is a judicious mix of backward and forward integration strategies. It is a type of integration strategies pursued by a company in order to strengthen its position in the industry.
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