Vertical integration is the process in which several steps in the production and/or distribution of a product or service are controlled by a single company or entity, in order to increase that company’s or entity’s power in the marketplace.
Types of Vertical Integrations:
There are basically 3 classifications of Vertical Integration namely:
- Backward integration – The example discussed above where in the company tries to own an input product company. Like a car company owning a company which makes tires.
- Forward integration – Where the business tries to control the post production areas, namely the distribution network. Like a mobile company opening its own Mobile retail chain.
- Balanced integration – You guessed it right, a mix of the above two. A balanced strategy to take advantages of both the worlds.
Horizontal integration (also known as lateral integration) simply means a strategy to increase your market share by taking over a similar company. This take over / merger / buyout can be done in the same geography or probably in other countries to increase your reach.
An example of Horizontal Integration will be You Tube, which was taken over my Google primarily because it had a strong and loyal user base.
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