Expansions through Integration
Expansion through integration is performed through value chain, which ensures the integration of an organization’s interlinked activities. For example, an organization can integrate the activity of procuring raw material with the activity of producing finished product. Expansion through integration widens the scope of an organization’s growth by combining the activities related to the present activity of an organization.
An organization moves either vertically or horizontally in the value chain to concentrate more broadly on customer groups. For example, if the cost of producing the products is less than the cost of procuring them from suppliers, an organization moves vertical in the value chain by making the products itself. In such a scenario, the organization itself supplies the raw material.
Types of Integration
we can divide the expansion through integration strategies into two types, which are as follows:
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Vertical Integration:
- Implies an activity that is carried out with the purpose of supplying inputs, such as raw materials; or distributing the final product to customers. Backward and forward integration are two types of vertical integration. In backward integration, the organizations become their own suppliers; whereas in forward integration, the organizations take control of distributing the products. For example, if an automobile organization buys its supplier organization, which sells tyres for its cars, it is known as backward integration. However, if a wholesaler purchases a retailing outlet to directly sell products to end costumers, it is known as forward integration.
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Horizontal Integration:
- Refers to a situation when an organization merges with or acquires other organizations serving the same customers, with the same or similar products, and adopting the same marketing process. Horizontal integration increases the size and profits of an organization by increasing its market share. An example of horizontal integration can be a pizza restaurant expanding its product range by acquiring a hamburger chain.
