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Integration Methods in Business

There are many types of ways businesses can integrate. These are known as horizontal, vertical, lateral and conglomerate.

Horizontal Integration

This is a merger of takeover between two firms in the same market at the same stage of production or distribution. Examples of this are Abbey and Santander.

Key Advantages of Horizontal Integration

Better market power.
Economies of scale.
Increased market share.
More inelastic (less competition).
Significant reduction in average costs.
Synergies (1+1=3).
Cut out duplication and waste such as Research and Development.

Key Problems with Horizontal Integration

Culture clashes – Hard HR vs Soft HR.
Power struggles with mergers.
Diseconomies of scale.
Weak communication and structure.
Costs of redundancies.
Risk isn’t spread into different markets.

Vertical Integration

This is when there is a merge or takeover where the two firms are at different stages of the production or distribution chain in the same market. Backward vertical is when you buy out the supplied. Forward vertical is when you buy out a customer.

Key Advantages of Vertical Integration

Control over suppliers providing exclusive prices.
Control over customers.
Generates USP.
Growth opportunities in different markets.
These advantages all help to spread risk.

Key Problems with Vertical Integration

Little knowledge and expertise of the market.
Account/window dressing issues.
Culture clashes etc..

Lateral Integration

This is where two firms are ‘similar’. However, they are not in exactly the same position. Examples include PepsiCo and Walkers.

Key Advantages of Lateral Integration

Spreads risk.
Opportunities for market/production development.
Brand acquisition (buying a brand name).
Synergy (1+1=3).
Market power.

Key Problems with Lateral Integration

Lack of expertise going into similar market.

Conglomerate Integration

This is where two firms are unrelated and are diversifying. Examples include Virgin and Northern Rock.

Key Advantages of Conglomerate Integration

Spreads risk of failure in one specific market.
Strategy for growth.
Rewards are higher.

Key Problems with Conglomerate Integration

Lack of knowledge and expertise etc.


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