Answer:
Step-by-step explanation:
Vertical and horizontal integration are two different strategies that companies can use to grow their business and increase their market presence. Let's understand each concept.
Vertical integration:
Vertical integration is the expansion of a company's operations within the supply chain through the acquisition or integration of companies operating at different stages of the same industry. Mergers and acquisitions of companies involved in upstream or downstream processes in the value chain.
There are two types of vertical integration.
1. Backward integration: Backward integration occurs when a company integrates or acquires a company involved in the early stages of the supply chain. For example, suppose a car manufacturer buys a steel production company.
2. Forward integration: Forward integration occurs when a company integrates or acquires a company involved in a later stage of the supply chain. For example, a car manufacturer buys a car dealership or retail network.
Vertical integration has several benefits, including reduced costs, greater control over the supply chain, better coordination, less reliance on suppliers and buyers, and the ability to incorporate more of the value chain. Horizontal integration:
Horizontal integration is the expansion of a company's operations through mergers or acquisitions of companies operating in the same industry and at the same stage of the value chain. The focus is on increasing a company's market share or diversifying its product offerings within the same industry.
Horizontal integration allows companies to achieve economies of scale, increase market power, reduce competition, enter new markets and take advantage of synergies between merged or acquired companies.
An example of horizontal integration is the acquisition of another soft drink company by a soft drink company.
In summary, vertical integration is the extension of operations along the supply chain, while horizontal integration is the extension of operations within the same stage of the value chain or industry. Both strategies have their own advantages and considerations, and companies may choose to use either or both strategies depending on their specific goals and market conditions.