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An overview of integration strategies in business, focusing on vertical and horizontal integration. Vertical integration involves a company producing its own inputs or distributing its own products, gaining control over the industry's value chain. Examples include backward integration (manufacturing raw materials) and forward integration (expanding to the next stage of production). Horizontal integration, on the other hand, involves a company adding similar business activities at the same level of the value chain and acquiring or gaining control over competitors. This strategy is also known as lateral integration. Examples of successful vertical and horizontal integration, such as vatdhman's backward and forward integration, and acquisitions like hp's purchase of compaq, facebook's acquisition of whatsapp, and google's acquisition of motorola.
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Among the various strategic options for growth, a firm implements integration strategy when it intends to expand the business by widening its scope by committing itself to the adjacent business, by combining activities related to present activity of a firm. Integration means when two businesses are brought together to add value to the overall organization.
Integration Strategies can be of broadly two types which are further classified under different categories. These are as follows I. Vertical Integration a. Forward Integration b. Backward Integration II. Horizontal Integration a. Acquisition b. Mergers c. Takeovers
Vertical Integration strategy is a growth strategy, as it allows an organization to create value by producing its own inputs (raw material) or by distributing its own products. Through the vertical integration strategy, company gains control over their industry’s value chain. For example a yarn manufacturer starts manufacturing its own raw material i.e. acrylic fiber, then it is known as backward integration. On the other hand, if the yarn manufacturer enters into the fabric manufacturing business, then it is known as forward integration. Both these strategies were adopted by a leading textile manufacturing company i.e. Vatdhman.
Horizontal Integration is one of the popular growth strategies for expansion. In this case the firm adds other business activities at the same level of value chain and seeks ownership of or increased control over a firm’s competitors. Horizontal integration: is a strategy where a company acquires, mergers or takes over another company in the same industry value chain. In addition to the external expansion mode, the firm can also do an internal expansion through the reinvestment of operating profits. This strategy is also known as lateral integration. Some of the popular examples of horizontal integration include the acquisition of Compaq by HP; acquisition of Whatsapp by Facebook; Motorola by Google; Ola Cabs acquired TaxiforSure; takeover of Satyam by Mahindra. 2 | P a g e
