Integration (160 words)
Jun 17th, 2011 by Chand Arora
The combination of distinct businesses within one company, usually portrayed as being along a vertical or horizontal axis.
Vertical integration is the addition of businesses that do things coming either just before the company’s existing processes, or just after. For example, were a car manufacturer to open a steel plant, it would be a case of “backward vertical integration.” Were it to buy a chain of car retailers, it would be a case of “forward vertical integration”.
Were the car manufacturer to start making trucks it would be a case of horizontal integration.
All types of integration involve both costs & benefits. Horizontal integration can often seem to offer economies of scale, from say, bulk buying of components & raw materials. Vertical integration offers greater control over the firm’s inputs or outputs. Predicting what these costs & benefits might be is never easy. One crucial calculation should always be: what is the danger of disintegration should the integration not work?