integration Flashcards
what is business integration ?
when two businesses are brought together through a merger or takeover, this is known as integration
is integration internal or external ?
external
what does the type of integration depend on ?
- the activities of each business
- where they operate in the supply chain
what are the five main types of integration ?
vertical forward (customer)
vertical backwards (supplier)
horizontal (same business)
lateral (same market, different business)
conglomerate (unrelated business in different market)
advantages of integration :
economies of scale, less reliance on external businesses, high profit margins from better cost control, more reinvestment and product innovation, barriers to entry can be increased, access to better production methods, access to new markets, lower transportation costs, faster delivery and manufacturing times
disadvantages of integration :
cultural clashes, very costly, resistance to change, extensive market research, high risky, duplication of resources, financial inefficiencies, risk of limited management experience, could be monitored : prevent exploitation
what is horizontal integration ?
involves the acquisition of a competitor or a related business
(when a business buys (merges or takes over) a rival competitor in the same industry)
why may a company use horizontal integration ?
to eliminate a rival, improve or diversify its core business, expand into new markets and increase its overall sales
benefits of horizontal integration :
opportunities for large economies of scale, less competition, greater market power, higher profits
drawbacks of horizontal integration :
expensive, cultural clashes, risk investigations by competition & markets authority (CMA) if market share is over 25%
what is vertical integration ?
involves the acquisition of a key component of the supply chain that the company has previously contracted for
(when one firm takes over or merges with another business at a different stage in the production process but within the same industry)
what can vertical integration do for a company ?
reduce the companys costs and give it greater control of its products
vertical integration can be ?
forwards or backwards
what is forwards vertical integration ?
is when a business buys a customer for their product
benefits of forwards vertical integration :
tighter control over retail image, better relationship with customers, increased market power, expert staff in stores
drawbacks of forwards vertical integration :
expensive strategy, loss of focus away from their main area of expertise, very different culture in retail to manufacturing
what is backwards vertical integration ?
is when a business buys a supplier for their product
benefits of backwards vertical integration :
tighter control over quality of supply, ability to lower prices to customers through cheaper supply costs, create a usp
drawbacks of backwards vertical integration :
less supplier competition could mean inefficiency, less flexibility in choice of supplier, risk of limited management experience in new areas
what is lateral integration ?
occurs when two firms, which are similar in some way, combine, however the two firms are not in the same industry
