Integration strategy with real time companies examples.

1. Muhammad Umair 11214
Aamir Saleem 11215
Muhammad Salman 11219
Ayesha Khalid 11220
Nimra Rafeeq 11221
Haroon 11230

2. Type of
Strategies
Integration
Strategies
Intensive
Strategies
Diversification
Strategies
Defensive
Strategies

3.  Integration Strategy also called Management
Control Strategy .
 Integration strategies allow a firm to gain control
over distributors, suppliers, and/or competitors.
 Types of Integration Strategy
Integration
Strategy
Vertical
Integration
Forward
Backward
Horizontal
Integration

4.  “Vertical integration” is a strategy used by a company
to gain control over its suppliers or distributors in
order to increase the firm’s power in the marketplace,
reduce transaction costs and secure supplies or
distribution channels.
 “Forward integration” is a strategy where a firm
gains ownership or increased control over its previous
customers (distributors or retailers).
 “Backward integration” is a strategy where a firm
gains ownership or increased control over its previous
suppliers. (raw material provider )

5.  Vertical integration (VI) is a strategy that many
companies use to gain control over their industry’s
value chain.
 This strategy is one of the major considerations when
developing corporate level strategy.
 The important question in corporate strategy is,
whether the company should participate in one
activity (one industry) or many activities (many
industries) along the industry value chain.
 For example, the company has to decide if it only
manufactures its products or would engage in retailing
and after-sales services as well.

6.  Costs: An organization should vertically integrate
when costs of making the product inside the company
are lower than the costs of buying that product in the
market.
 Scope of the firm: A firm should consider whether
moving into new industries would not dilute its
current competencies. New activities in a company are
also harder to manage and control. The answers to
previous questions determine if a company will pursue
none, partial or full VI.

9.  If the manufacturing company engages in sales or
after-sales industries it pursues forward integration
strategy.
 This strategy is implemented when the company wants
to achieve higher economies of scale and larger market
share.
 Forward integration strategy became very popular with
increasing internet appearance.
 Many manufacturing companies have built their
online stores and started selling their products directly
to consumers, bypassing retailers.

10.  Few quality distributors are available in the industry.
 Distributors or retailers have high profit margins.
 Distributors are very expensive, unreliable or unable to
meet firm’s distribution needs.
 The industry is expected to grow significantly.
 The company has enough resources and capabilities to
manage the new business.
 There are benefits of stable production and
distribution.

11.  When the same manufacturing company starts
making intermediate goods for itself or takes over its
previous suppliers, it pursues backward
integration strategy.
 Firms implement backward integration strategy in
order to secure stable input of resources and become
more efficient.

12.  Firm’s current suppliers are unreliable, expensive or
cannot supply the required inputs.
 There are only few small suppliers but many
competitors in the industry.
 The industry is expanding rapidly.
 The prices of inputs are unstable.
 Suppliers earn high profit margins.
 A company has necessary resources and capabilities to
manage the new business.
Balanced integration strategy is simply a combination
of forward and backward integrations.

13. Smartphone's Industry Automotive Industry

14. Oil Industry Media Industry

15.  Lower costs due to eliminated market transaction costs
 Improved quality of supplies
 Critical resources can be acquired through VI
 Improved coordination in supply chain
 Greater market share
 Secured distribution channels
 Facilitates investment in specialized assets (site,
physical-assets and human-assets)
 New competencies

16.  Higher costs if the company is incapable to manage
new activities efficiently
 The ownership of supply and distribution channels
may lead to lower quality products and reduced
efficiency because of the lack of competition
 Increased bureaucracy and higher investments leads
to reduced flexibility
 Higher potential for legal repercussion due to size (An
organization may become a monopoly)
 New competencies may clash with old ones and lead
to competitive disadvantage

17. This strategy may not always
be the best choice for an
organization due to a lack of
sufficient resources that are
needed to venture into a new
industry.
Sometimes the alternatives
to VI offer more benefits.
The available choices differ
in the amount of investments
required and the integration
level.

18. Definition
 “It is the process of acquiring or merging with
competitors, leading to industry consolidation.”
 “Horizontal integration is a strategy where a
company acquires, mergers or takes over another
company in the same industry value chain.”
 For example, Disney merging with Pixar (movie
production),

19.  Organization competes in a growing industry.
 Competitors lack of some capabilities, competencies,
skills or resources that the company already possesses.
 HI would lead to a monopoly that is allowed by a
government.
 Economies of scale would have significant effect.
 The organization has sufficient resources to manage
M&A.

21. Acquiring company + Acquired company
PepsiCo + Quaker Oats (in 2001)
Glaxo Wellcome+SmithKline Beecham=GlaxoSmithKline (in 2000)
HP + Compaq (in 2002)
Oracle + PeopleSoft (in 2005)
United Airlines + Continental (in 2010)
Microsoft + Yahoo! (in 2013, 2014)
Apple + AuthenTec (in 2012)

22. Coke’s Strategy
 The Coca Cola Company used forward vertical
integration to move a step closer to their consumers.
 Forward vertical integration refers to a management
style of involves a form of vertical integration whereby
activities are expanded to include control of the direct
distribution of its products”.
https://amebeobariollor.wordpress.com/2012/05/01/coca-colas-strategy-for-intergration/

23. DirectTV
 The 2003 purchase of DirectTV by News
Corporation is an example of a forward integration
through acquisition.
 DirectTV is a satellite TV company, and its
purchase enabled News Corporation to use it as a
medium to distribute more of its news, movies and
television shows by managing the process itself.
http://smallbusiness.chron.com/example-companys-forward-integration-37601.html

24. Costco Wholesale
 Costco Wholesale is one of the largest wholesale-to-
consumer business operations.
 A key quality of wholesalers that forward integrate is that
they typically sell to both consumers and business buyers.
 Wholesalers normally offer bulk quantities or sizes that
other small businesses buy and use.
 A restaurant might purchase a case of ketchup, for
instance.
 Consumers may also see a benefit in buying large,
economical quantities of products the routinely use, such
as pickles, diapers or frozen foods.
http://yourbusiness.azcentral.com/example-companys-forward-integration-28860.html

25. Apple:
 Vertical integration dictates that one company controls the
end product as well as its component parts.
 In technology, Apple for 35 years has championed a vertical
model, which features an integrated hardware and software
approach.
 For instance, the iPhone and iPad have hardware and
software designed by Apple, which also designed its own
processors for the devices.
 This integration has allowed Apple to set the pace for
mobile computing. “Despite the benefits of specialization,
it can make sense to have everything under one roof,”
http://knowledge.wharton.upenn.edu/article/vertical-integration-works-for-apple-but-it-wont-for-
everyone/

26.  Microsoft is opening its own retail stores, a forward integration strategy
similar to rival Apple Inc., which currently has more than 200 stores
around the world.
 Microsoft wants to learn firsthand about what consumers want and how
they buy.
 CompUSA Inc. recently closed most of its retail stores, and neither
Hewlett-Packard nor IBM have retail stores.
 Some Microsoft shareholders are concerned that the company’s plans to
open stores will irk existing retail partners such as Best Buy.
 Automobile dealers have for many years pursued forward integration,
perhaps too much.
 Ford has almost 4,000 dealers compared to Toyota, which has fewer than
2,000 U.S. dealers. That means the average Toyota dealer sold, for example,
1,628 vehicles in 2007 compared to 236 vehicles for Ford dealers. GM, Ford,
and Chrysler are all reducing their number of dealers dramatically.

27.  A simple example of backward vertical integration
strategy is an ice cream company that buys a dairy
farm. The company requires milk to make ice cream
and either can buy milk from a dairy farm or other
milk supplier or could own the dairy farm itself. This
ensures that it will have a steady supply of milk at its
disposal and that it will pay a reasonable price. This
can protect the ice cream maker in the event that there
are several other buyers vying for the same milk
supply.

28. Amazon.com
 Booksellers set the price at which Amazon.com can
buy a book from them. This in turn limits the amount
that Amazon.com can charge a customer for a book
and still make a profit. If Amazon.com publishes the
book itself, it can acquire its books cheaper, as its
publishing arm does not need to produce a profit as an
independent publisher would. Amazon can choose
whether to sell the books it publishes to other
bookstores or sell its books only through Amazon.com.
In this way, it can control competition for its books
and the price it can charge for them.
http://smallbusiness.chron.com/examples-backward-vertical-integration-strategies-14703.html

29. Starbucks
 Starbucks chose to buy a coffee farm in China, an area
that showed tremendous growth in the number of
coffee drinkers. At the same time, there was increased
competition among companies selling coffee, such as
McDonald's and other chains such as Costa Coffee.
Adding so many new coffee drinkers to the market
creates competition for high-quality beans, with every
coffee shop needing to buy them. By backward
vertically integrating by buying a coffee farm,
Starbucks ensures that it will have a bean supply and
that it will receive it at a reasonable price.
http://smallbusiness.chron.com/examples-backward-vertical-integration-strategies-14703.html