VERTICAL AND HORIZONTAL INTEGRATION

Growth strategy
Corporate level strategy, designed to achieve increase in sales, assets and profits.
Growth strategies may be classified as follows:

Vertical growth (Integration) Horizontal growth (Integration)

VERTICAL INTEGRATION
Process in which several steps in the production and/or distribution of a product or service are controlled by a single company or entity, in order to increase that companys or entitys power in the marketplace. Vertical integration occurs when company produces its own inputs or disposes of its own outputs.

 Every single product has a big life cycle. Might recognize the product with the Brand name printed on it, many companies are involved in developing that product. These companies are necessarily not part of the brand you see.

Vertical Integration: Stages in the Raw Material to Consumer Value Chain

The Raw Material to Consumer Value Chain in the Personal Computer Industry

Full and Taper Integration

Increasing Profitability Through Vertical Integration

Building barriers to entry Facilitating investments in specialized assets Protecting product quality Improved scheduling

EXAMPLE
Chilled cold drink, brand on the bottle is the producer of the drink but not necessarily the maker of the bottles. Task of creating bottles is outsourced to someone who can do it better and at a cheaper cost. Company achieves significant scale -produce the bottles itself to have own advantages is vertical integration

Arguments Against Vertical Integration

Cost disadvantages
Company-owned suppliers that have higher costs than external suppliers

Rapid technological change

Tying a company to an obsolescent technology

Demand unpredictability
Difficulty of achieving close coordination among vertically integrated activities

Types
Backward integration Company tries to own an input product company. Like a car company owning a company which makes tires. Forward integration Where the business tries to control the post production areas, namely the distribution network. Like a mobile company opening its own Mobile retail chain. Balanced integration Mix of the above two. A balanced strategy to take advantages of both the worlds.

HORIZONTAL INTEGRATION
The process of acquiring or merging with industry competitors. A strategy to increase market share by taking over a similar company. This take over / merger / buyout can be done in the same geography or probably in other countries to increase reach.

EXAMPLE
You Tube, which was taken over by Google primarily because it had a strong and loyal user base. There was no rocket science in technology used at YouTube which Google couldnt have done without taking over. to increase the viewers was definitely as complex without the takeover.

Benefits of Horizontal Integration

Reducing costs Increasing value Managing industry rivalry

Increasing bargaining power

Market power (monopoly power)

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