...From: Management To: Mr. Ron Assaf Re: Backwards Vertical Integration of Sensormatic Sensormatic Electronics Corporation should utilize the backwards vertical integration strategy. If Sensormatic vertically integrates backwards, they will have a competitive advantage over its competitors, such as Knogo, Checkpoint Systems, and 3M, which is a fit that is difficult to emulate. Backwards vertical integration is when a firm has a large amount of control over its supply systems, which leads to an elimination of the “middleman.” Due to the efficiency of backwards vertical integration and lower costs of production, a firm is able to be more competitive in the marketplace. By bringing both sides of the transaction into a single administrative structure with vertical integration, transaction costs can be avoided. Therefore, Sensormatic Electronics Corp. can benefit greatly from the positive outcomes that backwards vertical integration will bring in the future. Best Regards, Management After analyzing all three options (in-house production, Canon acquisition, and outsourcing), it becomes apparent that backward integration results in lower costs in the long term. The acquisition of Canon allows even more cost savings than in-house production. Backward integration will give Sensormatic more control over quality and quantity of its raw materials. By integrating backwards, Sensormatic will be able to avoid the inconsistencies it experienced previously with...
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...Give recent examples of forward integration, backward integration, and horizontal integration. A business strategy that involves a form of vertical integration (upstream supplier and downstream buyers) whereby activities are expanded to contain control of the direct distribution of its products. The advantages of forward integration consist of excluding competing suppliers, greater capacity to reach end customers and better admittance to information about end customers. (Example) Forward integration is when a farmer offers his crops at the local market rather than to a distribution center. (Example 2) Dell reaches its customer directly through the internet this cuts out traditional computer stores. Backward integration is vertical integration that combines a core business with its suppliers. The advantages of backward integration may include assurance of the pricing, quality and availability of supplies, and efficiencies gained from coordinating production of supplies with their consumption. A form of vertical integration that involves the purchase of suppliers in order to reduce dependency. (Example) A bakery business bought a wheat farm in order to reduce the risk associated with the dependency on flour. (Example 2) Many grocery stores now have their own brand products to compete the name brand products (less expensive). When a company expands its business into different products that are similar to current lines. Horizontal integration is the widening of a business at...
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...contracting parties. A term used to describe the use of the Internet to replace physical components of a company with information. A business engaged in virtual integration owns only their brand and their clients. This eliminates the need to physically produce, ship or handle any products as they are now outsourced. Read more: http://www.businessdictionary.com/definition/virtual-integration.html#ixzz3EphPUex0 ://www.businessdictionary.com/definition/integration.html#ixzz3EpfP12T2 DEFINITION of 'Vertical Integration' When a company expands its business into areas that are at different points on the same production path, such as when a manufacturer owns its supplier and/or distributor. Vertical integration can help companies reduce costs and improve efficiency by decreasing transportation expenses and reducing turnaround time, among other advantages. However, sometimes it is more effective for a company to rely on the expertise and economies of scale of other vendors rather than be vertically integrated. INVESTOPEDIA EXPLAINS 'Vertical Integration' Backward and forward integration are types of vertical integration. A company that expands backward on the production path has backward integration, while a company that expands forward on the production path is forward integrated. Examples of vertical integration include: - A mortgage company that both originates and services mortgages, meaning that it both lends money to homebuyers and collects their monthly payments. ...
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...results. Strategy formation is the process by which an organization develops and implements a strategy. All steps of the process should be followed in order because they build upon each other. The other steps of the process include value assessment, vision and mission formulation, strategy design, performance audit analysis, action plan development, contingency planning and implementation. 5.1 Integration Strategies In the competitive world of business, companies generally do whatever it takes to secure their stature in the marketplace. One of the most effective means to this end involves what is referred to as vertical integration, which takes on two forms: forward and backward integration. Forward integration focuses on the manner in which a company oversees its product distribution. On the other hand, the backward form concentrates on how a company regulates its goods or supplies. 5.1.1 Forward integration Forward integration is a type of vertical integration which a supplier acquires a manufacturer or a manufacturer acquires a distributor. Businesses engage in forward integration either to generate a higher margin from a key input which it owns or produces or to better market its products and increase its profitability. Dr. Gerhard Bester, an Agricultural Research and Development Director, our aim is to ensure PepsiCo has continued access to the key agricultural raw materials necessary to supply growing consumer needs, while respecting the environment and communities...
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...reports that Starbucks has acquired a 600 acre coffee farm in Costa Rica. You might ask: Why is Starbucks backward integrating? They probably do not think they can operate the supply chain more efficiently through vertical integration. They certainly aren't going to obtain a significant amount of coffee beans through one 600 acre farm. What are they doing? They are learning, experimenting, and innovating. It's a terrific reason to engage in partial/limited backward integration. Starbucks CEO Howard Schultz explained, "We are talking about doing innovative things we would not be able to do without this farm." Craig Russell, a Starbucks senior vice president, explained that the company would try to identify ways to address a fungus problem that is affecting coffee farm yields in Central America: "It's a dynamic situation and we will absolutely use this farm for testing different methodologies and ways to use new types of coffee trees we've developed that have become more diseaseand rust-resistant." Finally and most importantly, Starbucks intends to share what they learn about the fungus with other farmers, so that coffee bean production improves overall for the industry. This example demonstrates that a small bit of vertical integration (backward) can be very effective as a means of innovation and experimentation. Many companies simply view vertical integration from the perspective of its immediate effect on the bottom line. Ironically, many of those efforts actually...
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...STUDIES The Effects of Vertical Integration on Oil Company Performance Fernando Barrera-Rey Oxford Institute for Energy Studies WPM 21 October 1995 The contents of this paper are the author's sole responsibility. They do not necessarily represent the views of the Oxford Institute for Energy Studies or any of its Members. Copyright 0 1995 Oxford Institute for Energy Studies All rights reserved. No palt of this publication may be reproduced, stored in a retrieval system, or transmitted in any fomi or by any means, electronic, mechanical, photocopying, recording, or otherwise, without prior pemiission of the Oxford Institute for Energy Studies. This publication is sold subject to the condition that it shall not, by way of trade or otherwise. be lent, resold, hired out, or otherwise circulated without the publisher's prior consent in any fonii of binding or cover other than that in which it is published and without D similar condition including this condition being imposed on the subsequent purchaser. ISBN 0 948061 90 1 ABSTRACT When asked to rank industries by their degree of vertical integration, most people would agree that the oil industry should come top of the list. Underlying this belief is the fact that integration and size tend to be closely associated. As the oil industry is so large and oil companies so visible and perceived as so profitable, the common belief is a correlation between vertical integration, size and performance. If...
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...Horizontal integration b. Vertical integration c. Conglomerate integration d. None of the above 2. The source (home) location of most of the world's leading multinational enterprises is: a. North America and Europe b. North America and Asia c. Europe and South America d. Europe and Asia 3. Which type of multinational diversification occurs when the parent firm establishes foreign subsidiaries to produce intermediate goods going into the production of finished goods? a. Forward vertical integration b. Backward vertical integration c. Forward horizontal integration d. Backward horizontal integration 4. Suppose that an American automobile manufacturer establishes foreign subsidiaries to market the automobiles. This practice is referred to as: a. Forward vertical integration b. Forward conglomerate integration c. Backward vertical integration d. Backward conglomerate integration 5. Suppose that a steel manufacturer headquartered in Japan sets up a subsidiary in Canada to produce steel. This practice is referred to as: a. Conglomerate integration b. Forward vertical integration c. Backward vertical integration d. Horizontal integration 6. During the 1970s, American oil companies acquired nonenergy companies (e.g., copper, auto components) in response to anticipated decreases in investment opportunities in oil. This type of diversification is referred to as: a. Horizontal integration b. Conglomerate integration c. Forward vertical integration d. Backward vertical...
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...Impact of Vertical Integration Table of Contents What is Vertical Integration?3 De Beers Summary3 Internal strengths of vertical integration5 External strengths of vertical integration6 Disadvantages of vertical integration7 Quad/Graphics and vertical integration7 Four types of Vertical Integration 7 Ownership and Breadth of De Beers 9 Conclusion 10 References11 What is Vertical Integration? Vertical integration is a powerful corporate strategy that when implemented under the right circumstances can work towards the organizations advantage. Vertical integration describes a firm's control over several or all of the production and or distribution steps involved in the creation of its product or service. This integration takes the assets that was owned by two organizations and combines it into a single business; this creates either a joint ownership, or the sale of one firm’s assets to another business. This strategy is more advantageous then contracting with an outside company since usually it creates lower operating costs and more control over quality of its products or services. Forward and backward integration in an organizations’ value chain is an attempt to strengthen a company’s business model. Although there are different forms of vertical integration, its main approach is either to expand operations backward into an industry that produces inputs for the company, or forward into an industry that distributes the company’s products. According to Harrigan...
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...Assignment #4: Capstone Project BUS 599, Fall Quarter Abstract and brief summary In a competitive market, a company needs to formulate policies and strategies to maintain above average profitability. Corporate management must create strategies and capitalize on evolving competitive markets (Lindgrin, 2012). Both the companies Yahoo and Amazon are constantly implementing such strategies to maintain a reputation that stays ahead of the market trends, information system and globalization. This study will evaluate the success of both companies’ corporate-level strategies in terms of horizontal integration, vertical integration, strategic outsourcing and diversification, and will determine the type of strategy that contributed most effectively to the creation of a successful and profitable multibusiness model. Additionally, this paper will recommend an appropriate new strategy for each company that may maximize profitability and improved competitiveness in the industry. Yahoo!, Inc. Competitive analysis To better understand Yahoo’s internal and external opportunities and threats, in order to better estimate Yahoo’s ability to capture value, our starting point would be a quick analysis of operating and financial performance of Yahoo comparing to its peers in the industry during the last four years. We already...
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...FROM WHOLESALE TO RETAIL: IMPROVING THE FORWARD VERTICAL INTEGRATION STRATEGY AT FRESHMARK (PTY.) LTD. A dissertation by BARTHOLOMEW CHARLES BENECKE Submitted in partial fulfillment of the requirements for the degree MASTER’S DEGREE IN BUSINESS ADMINISTRATION (MBA) in the BUSINESS SCHOOL FACULTY OF MANAGEMENT SCIENCES TSHWANE UNIVERSITY OF TECHNOLOGY Supervisor: Prof. JA Watkins Co- Supervisor: V Naidoo May 2007 DECLARATION OF COPYRIGHT “I hereby declare that this dissertation submitted for the degree Master’s in Business Administration (MBA) at the Tshwane University of Technology, is my own original unaided work and has not previously been submitted to any other institution or higher education. I further declare that all sources cited are cited or quoted are indicated or acknowledged by means of a comprehensive list of references” BARTHOLOMEW CHARLES BENECKE Copyright© Tshwane University of Technology 2006 ii DEDICATION “This study is dedicated to my God, and King, to whom I give praise for all the gifts and strength He has granted me, and to my love Jasmyn, for her steadfast support through this time. I will love you both forever.” iii ACKNOWLEDGEMENTS I hereby wish to acknowledge the contribution of the following persons to the completion of this dissertation: ► To my parents for their love and support through all my years of study. Thank you for believing in me, even when I did not believe in myself. ► To Professor Watkins, for all his...
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...Vertical Merger Vertical mergers are a method companies use to purchase supply businesses or customers using a method called “forward integration” and supply companies using a method called “backward integration”. “Vertical integration by merger does not reduce the total number of economic entities operating at one level of the market, but it might change patterns of industry behavior. Whether a forward or backward integration, the newly acquired firm may decide to deal only with the acquiring firm, thereby altering competition among the acquiring firm's suppliers, customers, or competitors,” (Gabriele, pg. 2, 2003.) It is argued by many economists that conglomerate mergers are really vertical mergers in disguise and use this type of merger to gain more financial control and gain eventually going from small companies to corporations. “Many mergers that on the surface appear to be conglomerate also have a vertical ‘flavor’ because they often involve the acquisition of the target’s distribution network. An interesting question is whether conglomerate mergers with a vertical dimension can be a profitable strategy to deter new entrants..,” (Gabriele, pg. 3, 2003.)Vertical mergers are a great way for companies to control the internal financial aspects of the business between suppliers and customers and additionally helps managers monitor and improve employee and store performance. References: Cooper, J. Froebel, L., O'Brien, D., & Vita, M. (2005). A Critique of Professor...
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...dominated the frozen food market in the 1950's and 1960's. They accounted for over 60% of frozen food sales in the UK. They served exclusively to over 40,000 retail outlets and among other outlets served; they accounted for over 75% of their frozen food sales. Problem Summary Birds Eye was losing its market share and profitability during the 1970's and 1980's due to increased competition in the frozen foods market. In 1978 their market share of 60% declined to 29%. Private label competitors had gained over 21% of the frozen food market. The increase of stiff competition drove prices down and lowered profitability for Birds Eye. A huge factor in loss of profitability and market stronghold was their internal strategy. The company’s vertical integration strategy worked for in the beginning to initially strengthen their brand, but lost its performance during the 1970's and 1980's. Due to the rising costs of producing frozen foods in the 1970's, and increasing market competition, the company needed to shift to a more horizontal strategic approach. Analysis Value Chain Birds Eye value chain was the chain of activates that it was operated on. The chain of activities gave them more value to its service and its products until early late 1960’s. The primary activities for Birds Eye were inbound logistics, operations, outbound logistics, marketing...
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...Market entry Strategy Glitter is a local company which is currently dealing with fashion accessories, wedding planning and advertising. The company wants increasing its sales by introducing new and modified products on the market. Executives constantly look at new market entry opportunities as a way to generating rapid growth, diversifying their portfolios, and preempting competition—and, occasionally, secretly satisfying their entrepreneurial spirit. There are various ways in which a company can enter in to market. No one market strategy works for all markets. In the case of Glitter, I suggest following strategies are the main entry options open to them. Organic Growth Organic growth strategy involves strengthening your company using its own energy and resources. This is the process of business expansion due to increasing overall customer base, increased output per customer or representative, new sales, or any combination of the above, as opposed to mergers and acquisitions. This approach to company growth is slower than others, but it has relatively low up-front costs, making it an attractive option for small-business owners as Glitter who want to expand their companies but don’t have large amounts of liquid capital. Developing your company’s strengths through organic growth can make you a stronger competitor in your industry. For instance, a company that continually devotes its profits to improving its quality-control department offers increasing value to its...
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...This thus, results in the company acquiring the other company’s assets and liabilities. There are various types of business mergers. There are vertical forward integration, vertical backward integration, lateral integration and conglomerate. For example, when a sugar factory merges with a supermarket such as TESCO, it is considered a vertical forward integration because it is merging with a tertiary sector while a sugar factory is a secondary business sector – it processes raw materials and sends them off to a retail or wholesaler for goods to be sold. However, when the sugar factory merges with suppliers such as sugarcane factory, it is considered a vertical backward integration because the sugarcane factory is a primary business sector. Also, if RHB – an Investment bank merges with Commercial banks like HSBC bank or CitiGroup etc, it is considered a conglomerate as commercial banks cater to only individual clients whereas investment banks are financial institutions that assists individuals, corporations and governments in raising capital by underwriting and/or acting as the client's agent in the issuance of securities. Merging these two banks would result in a Universal Bank which participates in many kinds of banking activities. However, when RHB Investment Bank merges with OSK Investment bank, it is under lateral integration. This is because both RHB & OSK are both at the same level - Investment Banks and are at the same field – Business and this is what I will be...
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...well as vertical integration. Disney is a prime example of how to achieve long-run success through the choices of business, the choice of how many activities to undertake, the choice of how many businesses to be in, the choice of how to manage a portfolio of businesses and the choice of how to create synergies between those businesses (3, p.191-221). All these choices and decisions are made through Disney’s corporate strategies and enabled them to reach long-term success. One will discuss Disney’s long-run success through a general approach. Eisner’s turnaround of the company and his specific implications/strategies will be examined in detail in part II. Disney could reach long-run success mainly through the creation of value due to diversification and the management and fostering of creativity, brand image and synergies between businesses (1, p.11-14). The most important part of Disney’s long-term success is due to its key strategic choices and incorporation of various diversification strategies. Disney created value mainly through “vertical integration” of its business lines, especially through the concept of forward integration. For example, Disney integrated production of movies and the final distribution in cinema’s or on television, especially through its acquisition of ABC in 1995 (1, p.6/7). Through this acquisition, Disney was able to extent its boundaries quickly and gain access to a wider level of distribution for its products. Furthermore, forward integration was accomplished...
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