Question

Topform Company Limited produces powered milk and operates in the Eastern
Region of Ghana. The company has real growth potential and the management wish
to concentrate its growth efforts within the industry.

a) Explain how the company can grow vertically backwards and forwards as well as horizontally within the industry.

Answer 1

Verticial integration is a growth prospect for a company helping it to manage and control various aspwcrs of the sales, distribution and production processes. The goal of the vertifical integration to integrate various activities and to enjoy higher sales, elimination of costs and also improving the profits of the business operations of the company.

Backward integration is the process where the company purchases one of its suppliers providing the company raw materials. This type of integration results in supplier becoming a subsidiary for the purchasing company and buying an entity for the supply chain. It helps the company to control the quantity and also the price for the inventory produced by the supplier.

Forward integration is when the vertical integration strategy would involve a company growing by purchasing retail stores and the distributors of the company. This allows the company to improve their process by advancing the control for the supply chain, bringing the retailers and also the distributors closer to the company and also company getting closer to the end consumer. Distribution channels could be better controlled like the shipping and the trasnportation charges for the retail stores.

Horizontal integration takes place between two companies or organisation within the same industry. When the companies wish to achieve a higher scope for diversifying their product like, want more consumer markets to explore and also grow the size of the company, one can acquire the another company in the same industry to have more customers and specialisation to deal with. Cost synergies are improved by eliminating the operation costs, improving the production capacity and also sharing technologies and risks.