![]() For example, imagine a restaurant business decides to buy a farm that produces goods used to make food in the restaurant.įorward integration: In forward integration, a company decides to acquire a business ahead of it in the supply chain and control its post-production process. However, vertical integration can be broken down into backward, forward and balanced integration, which are defined below:īackward integration: Backward integration is achieved when a company decides to purchase another company that makes products or services that come before theirs in the supply chain. Horizontal integration cannot be broken down into sub-categories. Depending on the objective of your company, you may choose one type of integration to achieve this goal. In contrast, a company aims at gaining majority or all control of the supply chain in vertical integration, therefore, improving its production and distribution process. The objective of horizontal integration is to increase the size of the company or business and its production scale. Read more: 5 Stages of Implementing an Effective Production Schedule 2. In vertical integration, the companies often continue working within their different production stages. Horizontal integration involves merging two companies with the same product or service, so they often utilize the same types of processes. One of the key differences between horizontal and vertical integration is in the way that they create their products. The following are the 12 main differences between horizontal and vertical integration: 1. It's important to learn the main differences so you can make the right decision for the company. Read more: 5 Forward Vertical Integration Examples (With Tips) 12 differences between vertical and horizontal integrationĪ company may choose between vertical and horizontal integration, while other companies have the means to implement both strategies. Rather than working with another business to acquire resources, the company now has unfettered access to those raw materials. Vertical integrations can help boost profits for a company and allow them direct and immediate access to their customers. Rather than merging with a similar company, the original business acquires a different company in the same chain of supply.įor example, the company acquired can be one that trades raw materials that they use in producing their goods or services, or it can be a business dealing in benefits that come at the end of the supply chain. This practice can also be described as the level at which a company controls its downstream buyers or upstream suppliers and distributors. Vertical integration is when a company or business expands by buying another company along its supply chain. Related: A Definitive Guide To Integration in Business What is vertical integration? The purpose of a business partnership or acquisition like this would be to increase the money they would make after gaining entry to the new market as opposed to the revenue they would make separately in the current market. This business integration method is often used by companies to strengthen their market position, expand production and gain entry to either a new or bigger market.įor example, if a clothing store wants to enter the international market or appeal to a bigger market in its own country, it can merge with another clothing store to increase its overall customer base. A company can achieve this type of integration by merging with another company of equal or better strength to gain more influence, grow revenue and expand its customer base. Horizontal integration is the process where a company expands by acquiring another company within its industry. In this article, we explain what horizontal and vertical integration are and discuss 12 key differences between them. A business may use either vertical or horizontal integration to achieve its goals. Integration helps a company to connect better with customers, suppliers, partners and other relevant institutions. Integration within a business is a strategy used to merge business plans and goals with information technology.
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