Question

a) Define what is meant by vertical and horizontal integration.

b) Outline and explain the merits and demerits with employee a vertical and horizontal integration strategy for a furniture company.

Answer 1

a) Vertical integration is the process of combining different processes or systems in the same field to gain efficiency. It is the capabilities acquired by the firm to do its processes by itself, increase self sufficiency and save costs.

Horizontal integration is acquiring other firms or businesses in the same or different industries to widen the product range or expand the business. It involves taking over of the business at similar levels or same kind of processes.

b) Merits of employing a vertical integration strategy for a furniture company is it will save costs for labor and raw materials. It will help the business to become more efficient as it can produce goods as per demand and just in time. It will increase the capabilities of the business and make it self sufficient.

The demerits of vertical integration strategy in a furniture company are that it will increase workload and stress on resources of the company. It will divert the focus from the core functions of the company like marketing to the acquired functions like manufacturing. It will increase the risk to the business.

Merits of employing a horizontal integration strategy for a furniture company that it increases scope of sales and add diversity to the product range. It decreases the risks to the business.

Demerits of employing a horizontal integration strategy for a furniture company are that it increases costs like the cost of acquisition and operations. It may cause resource scarcity as resources are spread over wide range of systems.