Integration: A process to combine, and eventually expand.
Horizontal integration is the widening of a business at the same point in the supply chain. For example, supermarkets that are moving towards selling a larger variety of non-food items are increasing their level of horizontal integration.
Involves a merger or takeover between 2 organisations involved in the same line of business & still selling their range of goods or services. ( doesn't not give rise to any significant departure in any form)
Example: Airline takes over airline. Tour operator merges with tour operator. Travel agent takes over travel agent. - Thomas Cook taking over MyTravel. –A radio station that also owns a newspaper and magazine.
The advantages of horizontal integration can lie in reaching the customers (if you are already selling them one thing, use the opportunity to sell more) but can include economies of scale in purchasing, logistics and operations. Sources: moneyterms.co.uk
Synergies, since they are in the same line. & Increased in market power. Reduction in cost.
A synergy is a combination that has a greater effect than the combined parts.
This most common synergies are:
cost synergies — savings, generally through economies of scale.
Sales synergies - better reach through a larger sales force or expanded customer base, cross selling one product to buyers of another etc. Sources: moneyterms.co.uk
The Disadvantages:•Costs
•Increased work load
•Increased Responsibilities
•Anti-trust issues
•Creating a monopoly
Vertical Integration: is the degree to which a firm owns its upstream suppliers and its downstream buyers.
Example:
Carnegie Steel Company owned mills where the steel was manufactured, mines where the iron ore was extracted, coal mines that supplied the coal, ships and railroads that transported the material, etc.
Advantages:Reduce transportation cost
Improve supply chain coordination
More opportunities to differentiate by means of increased control of inputs
Capture upstream and downstream profits
Increase entry barriers to potiental competitors
Backward (upstream) vertical integration: this is when a company owns some of the subsidiaries hat produce some of the inputs used in the production of its products.
Example: When and automobile company owns a tire company
Forward vertical integration: this is when a company owns the subsidiaries that market the product.
Example is an movie studio that also owns a chain of theaters
Balanced Vertical Integration: is a company that sets up subsidiaries that supply them with inputs as well as market their product.
Disadvantages:Capacity balancing: Making sure that inputs will match outputs at all levels
Decreased Flexibility
Developing new competencies may compromise existing competencies
Increase bureaucratic costs
Monopolization of markets - Sources: colordocte.com
Potentially higher cost due to the lack of supplier
Bureaucrat definition - dictionary.reference.com
–noun
http://www.bized.co.uk/educators/16-19/tourism/business/activity/ownership.htm1.
an official of a bureaucracy.
2.
an official who works by fixed routine without exercising intelligent judgment.