VERTICAL AND HORIZONTAL

INTEGRATION

Khadeejath farhana m.h

VERTICAL INTEGRATION

Vertical integration is a strategy by which a company owns

or controls its suppliers, distributors or retail locations to
control its value chain.
A value/ supply chain is a set of activities that a firm
operating in a specific industry performs in order to deliver a
valuable product in the market.  
TYPES OF VERTICAL INTEGRATION

Forward integration: This is when the company owns the subsidiaries

that market the product. Eg: Soch, Allen Solly, Royal Enfield etc.
Backward Integration: This is when the company owns some of the
subsidiaries that produce the inputs used in their production
process. Eg: Lays.
Balanced integration: this is a combination of both forward and
backward integration
ADVANTAGES OF VERTICAL INTEGRATION

Lowers cost due to eliminated market transaction cost.

Improve supply chain co-ordination
More opportunities to differentiate by means of increased control
of inputs
Increase entry barriers for competitors.
Competitive advantage in market sales.
DISADVANTAGES

• Lack of competition may lead to reduced efficiency.

• Higher investment leads to reduced flexibility
• Increased expenses
• Loss of focus
• Higher potential for stress.
HORIZONTAL INTEGRATION

• It is an integration strategy pursued by a company to strengthen its

position in the industry. A corporate that implements this type of
strategy usually mergers or acquires another company in the same
production stage.
• Merger is the joining of two independent companies to form a
new company.
• Acquisition is purchase of another company.
ADVANTAGES

Larger market share

Reducing competition
Sharing resources common to different products
Reduction in cost
DRAWBACKS

Regulatory scrutiny
Need for transparency
More accountability
Trust issues