...Introduction The aim of this assignment is to write a report on both the advantages and disadvantages in general of firms in a horizontally integrated (or focused) sector against those in more diversified businesses which are vertically integrated or conglomerates. In this report, I will be analysing and comparing how these integrations are being effectively deployed by various organisations in order to have the edge above their competitors in the sector. The second part of this report will focus on the clear definition of the types of business integration discussed as well as giving examples of each type. With the aim of using numerous examples and case studies, to show how these organisations are using the integration to gain more control and less competition in their sector. Horizontal Integration Horizontal Integration, according to Investopedia, this is defined as “When a company expands its business into different products that are similar to current lines”. However there are so many definitions to define horizontal integration but one thing all the definitions have in common is the coming together of two or more companies with the aim of becoming the dominant force in the sector and also generating more profit with less input compared to when these companies operate separately, but this is be done under single ownership and control. Another definition of horizontal integration is “the merger of companies at the same stage of production in the same or different sectors”...
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...biotechnology start-up company, Contract Research/Manufacturing Organizations (CRO/CMO), Fuel biotechnology and Agri-biotechnology we can see what the unique properties each of these sectors have and what they share with each other. Vertically Integrated Biotechnology Company Vertical integration is the replacement of transactions in the marketplace with internal transactions within the company. Vertical integration is the result of mergers acquisitions of other companies that once supplied the parent company. It allows the company to control the economy of its products. The use of this business model has led to many advantages and disadvantages within the biotechnology industry. Vertical integration of biotech companies has offered many advantages to the growth of not only the business but also the growth of the technology offered by the company. However, growth through integration can also have many disadvantages. By examining both we can see how vertical integration plays a part in the growth of a biotechnology company. The vertical integration model has been around for many decades. Biotechnology companies apply this business model to grow and strengthen the business of the company. Vertical integration allows companies to control products from raw materials to end product. This type of business model allows the company to better manage the supply chain to ensure the product is available when the customer needs it. It reduces supply chain breakdown...
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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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... Discussion Hill, Jones, & Chilling (2015) state that “[t]he overriding goal of managers is to maximize the value of the company for its shareholders” (p. 287). Further, the text addresses how Apple strategically chose outsourcing and vertical integration as strategies, which influenced the firm’s profitability. Specifically, the authors note that corporate-level strategy involves choices, which managers must make in (1) deciding on which industries and business sectors the company should compete; (2) selecting value creation activities within those sectors; and (3) deciding how it should enter and exit specific business sectors in order to maximize profitability (Hill, Jones, & Schilling, 2015). Hill, Jones, & Schilling (2015) reference that horizontal integration “is the process of acquiring or merging with industry competitors to achieve the competitive advantages that arise from a large size and scope of operations” (p. 290). Further, advantages of horizontal integration include a lowered cost structure, increased product differentiation, a leveraged competitive advantage, and an increased bargaining power (Hill, Jones, & Schilling, 2015). However, the primary disadvantage with horizontal integration is that the strategy is challenging for managers for a variety of reasons. For example, there may be challenges in terms of conflicting company cultures, as well as high management turnover in the...
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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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...Vertical Integration of Samsung Vertical Integration is a method of management control that is used by many companies. It is the process in which a single company controls or owns the distributors and the suppliers in the production of a product or service. This vertical integration is an important corporate strategy as it creates significant impact for the company in the regions of costs, differentiations, and other strategic issues. Vertical integration if applied right, can help company to reduce costs and improve efficiency by reducing transportation expenses and reducing turnaround time. Vertical integration is divided to backward integration and forward integration. Backward integration is when a company buys its suppliers, or set up its own facilities to manufacture supplies. Usually when a company buys a supplier, it is because of the products that are produced by supplier is performing very well and in great quality therefore create a good feedback from customers. It also reduces transportation costs, improve profit margin and make the company more competitive. Forward integration is where activities are expanded to include control of the direct distribution of its products. A company buys its own retail shops to distribute the products directly. With this way, the company can market its products directly to the hand of costumers rather than having to engage with other retailers. This can help company to achieve higher market share, better access to customers...
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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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...Because he did not have to pay any middle men, Carnegie could aggressively cost his steel and still make a profit (Online Highways). With his lower prices, Carnegie began to slowly become a monopoly due to being the cheapest option in steel. American Apparel is an example of a modern day company that uses vertical integration. They start by knitting and dying fabrics, and continue all the way to public stores. Due to the lack of middlemen, they are able to cut production costs, and because they are entirely in the United States, they are able to cut shipping costs by not using foreign vendors (American Apparel. This supplies American’s with jobs rather than outsourcing to another country (American Apparel). People like the idea of supporting their country rather than a foreign one, so people tend to buy American-products (Economist), giving American Apparel an advantage over other companies. Vertical integration gives society more competitive prices, meaning the consumer saves money as well as the companies. Vertical integration creates more jobs, leading to more people being paid so more money is spent, helping everyone. The only disadvantage of vertical integration is how competitive the pricing is. If a local business has to compete with a big one that is vertically integrated, the small business will have to charge more due to more expenses in the middlemen (Economist). However, some people would rather buy things from a small merchant than a...
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...acquire an in-depth knowledge of the industry) 2) All resources are put back into the business (creates sustainable competitive advantage) 3) There are typically lower overhead costs and fewer “layers” in the organization which leads to reduced “bureaucratic costs” B. Costs (Disadvantages): 1) There is a total dependency on the industry (the firm has all its eggs in one basket) 2) Firms tend to develop a “myopic” view and management doesn’t see change coming and therefore is unable to change when times get tough 3) Top managers are not challenged and may become bored and stagnant 4) The firm misses opportunities to leverage resources and capabilities in an area outside of the industry that may be more profitable 2. Vertical Integration A. What is vertical integration? Vertical integration is the degree to which a firm owns its upstream suppliers and its downstream buyers. Typically a firm does not vertically integrate unless by doing so it can either cut costs or create a differentiation advantage. B. What are the pros (benefits) and cons (drawbacks) of vertical integration? Benefits of Vertical Integration: 1) Reduce transportation costs if common ownership results in closer geographic proximity. 2) Improve supply chain coordination. 3) Provide more opportunities to differentiate by means of increased control over inputs. 4) Capture upstream or downstream profit margins. ...
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...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 customers, making it an increasingly challenging competitor. Organic growth also can increase your market share and improve customer retention. Reinvesting your profits in your sales and customer-service departments, for example, helps attract new customers while strengthening relationships with your existing customers. The disadvantage of an organic growth strategy is that external growth...
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...PROCESS MANAGEMENT Companies begin the process of organizing operations by setting competitive priorities. That is they must determine which of the following eight priorities are to be emphasized as competitive advantages: 1. Low-cost operations 2. High performance design 3. Consistent quality 4. Fast delivery time 5. On-time delivery 6. Development speed 7. Product customization 8. Volume flexibility Although all eight are obviously desirable, it is usually not possible for an operation to perform significantly better than the competition in more than one or two. The five key decisions in process management are: I. Process Choice II. Vertical Integration III. Resource Flexibility IV. Customer Involvement V. Capital Intensity These decisions are critical to the success of any organization and must be based on determining the best was to support the competitive priorities of the enterprise. PROCESS CHOICE The first choice typically faced in process management is that of process choice. Manufacturing and service operations can be characterized as one of the following: 1. Project 2. Job Shop 3. Batch Flow 4. Line Flow 5. Continuous Flow The nature of these processes are discussed below and summarized in the manufacturing product-process matrix on page 8. Project Process. Examples of a project process are building a shopping center, planning a major event, running a...
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...PROCESS MANAGEMENT Companies begin the process of organizing operations by setting competitive priorities. That is they must determine which of the following eight priorities are to be emphasized as competitive advantages: 1. Low-cost operations 2. High performance design 3. Consistent quality 4. Fast delivery time 5. On-time delivery 6. Development speed 7. Product customization 8. Volume flexibility Although all eight are obviously desirable, it is usually not possible for an operation to perform significantly better than the competition in more than one or two. The five key decisions in process management are: I. Process Choice II. Vertical Integration III. Resource Flexibility IV. Customer Involvement V. Capital Intensity These decisions are critical to the success of any organization and must be based on determining the best was to support the competitive priorities of the enterprise. PROCESS CHOICE The first choice typically faced in process management is that of process choice. Manufacturing and service operations can be characterized as one of the following: 1. Project 2. Job Shop 3. Batch Flow 4. Line Flow 5. Continuous Flow The nature of these processes are discussed below and summarized in the manufacturing product-process matrix on page 8. Project Process. Examples of a project process are building a shopping center, planning a major event, running a...
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...experience of online shopping can be classified into its advantages as well as disadvantages. They are given as follows. Advantages More convenient Better deals Less time consuming Information and reviews Price and selection Disadvantages Fraud and security concerns Lack of full cost disclosure Privacy Lack of hands-on inspection What advantages does Dell derive from virtual integration? How important are these advantages in the auto business? Virtual integration and its benefits A way of capturing the advantage of vertical integration without actually vertically integrating Vertical integration solves production problems related to communications, coordination, and control but at a cost of the increased overhead needed to arrange production organization Virtual integration therefore is the ability to achieve the advantage of vertical integration without incurring the overhead. Communication and coordination Vertical integration leads to efficient and effective coordination, through a number of mechanisms that include likelihood of physical proximity, established patterns of communications, and greater willingness to cooperate with other members of the same group. “Stitching together a business with partners that are treated as if they’re inside the company” Michael Dell Control The prospect of improved control over the actions of suppliers is another important rationale for virtual integration. Un-integrated partners can exert power over each other as transactions...
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...ZARA IT FASHION Zara follows a very simple business idea of linking Customer Demand-Manufacturing-Distribution, making them the best vertical integrated company with super responsive network. It just outsources simple activities, which doesn’t affect their corporate strategy or supply chain and gives a strategic advantage. Zara owns its upstream suppliers and downstream buyers, which has a significant impact on SBU’s (Sequential Business Units). It supports vertical integration, which aligns with their supply chain strategy. It just outsources products, which are simple, has less turn around and doesn’t impact their supply chain. Because of their super responsive communication and network they have been extremely successful. The corporate strategy very closely aligns to vertical scope of the firm. Due to its vertical integration, it has complete control over cost and assets. The governance structure they follow is closed communication, rapid timing and synchronicity and leveraging their investment in production and distribution facilities, which is continuum too. Selling a finished product within 15 days in fashion industry is unbelievable and they clearly outnumber their competitors and rivals. Since, it has its centralized design and production center attached to the HQ, the flow of information is rapid and direct; making their supply chain more responsive. Also, their Organizational structure is designed in a way that the operational procedures, performance measure and...
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...FORD MOTOR COMPANY’S | SUPPLY CHAIN STRATEGY | | | 11/13/2012 | *The Virtual Integration Model Analysis at Ford Motor Company, to Companies like Dell* EXECUTIVE SUMMARY As director of Supply Chain Systems, I have decided to implement portions of the new supply chain strategy of Virtual Integration and strategies from companies like Dell. Although there are several key differences between the companies, Dell’s virtual integration strategy can be applied to Ford’s supply chain operation. A modification of the virtual integration system currently used by Dell could be applied to Ford’s dependent supplier base, distribution system, dealerships and divisions. Special care will need to be taken to address the unique dependency of our custom Tier 1 supplier. The management of lower tier suppliers of general or generic components would be more effectively suited by the standard procedures used by Dell. In order to adopt the Dell Model we would: · Sell direct · Mass-produce customized products · Build to order · Substitute virtual integration with suppliers for vertical integration If we at Ford could find a solution to the obstacles of virtual integration, which I will explain in detail below. It could essentially make our supply chain run smoothly with less bottlenecking, inventory, and better overall performance. Managers could overcome the complex and error-prone manual process of forecasting and procuring parts which would result in reduced...
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