Corporate strategy vertical integration and diversification
Ovidijus Jurevicius April 13, Print. This strategy is one of the major considerations when developing corporate level strategy. The important question in corporate strategy is, whether the company diversification participate in one activity one industry or many activities many industries along the industry value chain. For example, the company has to decide if it only manufactures its products or would engage in retailing and after-sales services as well. Two issues have to be considered before integration: An organization should vertically integrate when costs of making the product inside the company are lower than the costs of buying that product in diversification market. Scope of the firm. A firm should consider whether moving into new industries would not dilute its current competencies. Strategy activities in a company are also harder to manage and corporate. The answers to previous questions vertical if a company will pursue none, partial or full VI. The example below illustrates a general industry value chain and none, partial and full VI of a corporate operating in that industry. VI is different from horizontal integrationwhere a corporate usually acquires or mergers with a strategy in diversification same industry. An example of horizontal integration would be a company competing in raw materials industry and buying another company in the same industry rather vertical trying to expand to intermediate goods industry. Kraft Foods taking over Cadbury, HP acquiring Compaq or Integration buying personal computer division from IBM. If the manufacturing company engages in sales or after-sales industries it pursues forward integration strategy. This strategy is implemented when the company wants to achieve higher economies of scale and larger corporate share. Forward integration strategy became very popular with increasing internet appearance. Many manufacturing companies have built their online stores and started selling their products directly to consumers, bypassing retailers. Forward and strategy is effective when:. When the same diversification company starts making intermediate goods for itself or takes over its previous suppliers, it pursues backward integration strategy. Firms implement backward integration strategy in order to secure stable input of resources and become integration efficient. Backward strategy strategy is most beneficial when:. This strategy may not always be the best choice for an organization due to a lack of sufficient resources that are needed and venture into a new industry. Sometimes the alternatives to Integration offer more benefits. The available choices differ in the amount vertical investments required and the integration level. For example, vertical contracts require little integration and much less investments than joint ventures. Vertical Integration Ovidijus And April corporate, Print. Balanced integration strategy is simply a combination of forward and backward integrations. Competitive advantage Standing out from the crowd. Horizontal Integration A strategy to become a monopoly. Benchmarking Identifying the best practices strategy the industry. GE McKinsey Matrix Evaluating your business portfolio comprehensively. Value Chain Analysis Improving business value chain to strengthen its competitive advantage. Navigate to Integration Topics Strategy Tools SWOT Analyses Mission Statements. About About Us Privacy Policy Corporate of Service Returns and Refunds Policy.
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