Question

Define the three types of integration strategies (forward integration, backward integration, and horizontal integration). Give examples and guidelines for when each is strategically appropriate.

Answer 1

Forward integration: Forward integration is where a company tries to own the companies which were it's customers so that it becomes strong enough to distribute it's products on it's own without depending on distributors. This strategy is very helpful for those companies which are strong interms of fianace and maerket and can make a good stand on their own. For example some large manufacturers have their own retail shops where they sell their products without needing any distributor to decide where they must sell their products.

Backward integration:Backward integration is where a company tries to purchase it's suppliers so that it can operate directly without any supplier and can have it;s own unit. This helps in reducing the costs of production and hence the overall costs can be reduced. For example a bakery purchases a flour industry so that it no need to purchase the flour but can make it on it's own. This process is very beneficial as it prevents suppliers from cheating on the manufacturers and hence there will be a lot of cost saving.

Horizontal integration:Horizontal integration is where a company aquires other company in it's same line. For example a manufacturing industry aquired another manufacturing industry who was it's rival then it is called horizontal integration. This makes the company even stronger as the competition will get reduced and it can produce more volumes and hence maximise it's profits. Hence this is very beneficial for the companies who is capable of acquiring their competitors to eliminate competition.