INTEGRATION
STRATEGIES
INTEGRATION STRATEGIES ARE CRITICAL WAYS TO
BUILD A COMPANY’S COMPETITIVE BUSINESS. IT CAN
USE VARIOUS INTEGRATION STRATEGIES TO INCREASE
ITS INFLUENCE IN SUPPLY AND DISTRIBUTION OR TO
LESSEN ITS COMPETITION. THIS STRATEGY CAN HELP
CONSOLIDATE AND EXPAND A COMPANY’S PLACE IN
THE MARKET AND INCREASE ITS COMPETITIVENESS.
VERTICAL
INTEGRATION
• The degree to which a company controls the
manufacturing of its inputs or suppliers as
well as the distribution of its outputs or final
products is known as vertical integration.
FORWARD INTEGRATION
• Forward integration is a type of downstream
vertical integration in which a company owns or
controls product distribution in the supply value
chain. It broadens a manufacturer's operational
reach to include product sales and tightens its
hold on market demand. It gives the firm better
control over retail prices, allowing it to adapt to
demand fluctuations.
ADVANTAGES AND DISADVANTAGE
OF FORWARD INTEGRATION
ADVANTAGE DISADVANTAGES
• Full control over downstream • Mismanagement and poor control will not
activities; deliver the expected value of the strateg.
• Elimination of the middleman • Significant capital outlay or costly to
significally reduces applicable costs in sustain a company-owned distribution
the value chain such as market arm compared to external or third-party
transaction expense, distribution and entities.
delivery, and warehouing.
• The firm may not realize expected
• Differentiated products increase their synergies.
branding image.
• Lack of expertise or talent, culture
• It may create higher barriers to entry differences, or the strategy does not fit
if the firm is financially capable to the business model or overall direction of
sustain this strategy. the firm.
BACKWARD
INTEGRATION
• Backward integration is a type of vertical
integration where a firm buys or takes control of
another firm that provides the materials or
services required for its finished goods. A firm
pursues this strategy to reduce production costs,
increase efficiencies in the supply chain, create
barriers to entry of new entrants, and overall, to
achieve a competitive advantage in the market.
ADVANTAGES AND DISADVANTAGE
OF BACKWARD INTEGRATION
ADVANTAGE DISADVANTAGES
• Secure material supply. • Substantial investments.
• Quality control. • Failure to achieve
• Cost efficiency. economies of scale.
• Creates barriers to entry • Lack of competencies.
• Differentiation
THE DIMENSIONS OF
VERTICAL STRATEGY
A FIRM SHOULD CONSIDER THE
FOLLOWING DECISIONS TO ACHIEVE
ECONOMIES OF SCALE TO GAIN A
COMPETITIVE EDGE WHEN PURSUING
VERTICAL INTEGRATION STRATEGIES:
• The scope of integrated activities carried out. Which activities
in the supply chain are likely candidates to apply a vertical
integration strategy to drive down costs and gain a
competitive advantage? A manufacturer's supply chain would
consist of materials sourcing and processing, assembly,
warehousing, and distribution.
