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The likely benifits of Integration

Forward Vertical Integration

1.The merger gives an assured outlet for their product.
2.The profit margin made by the retailer is absorbed by the expanded business.
3.The retailer could be prevented from selling competing makes of car.
4.Information about consumer needs and preferences can now be obtained directly by the manufacturer.


Backward vertical integration

1.The merger gives and assured supply of important components.
2.the profit margin of the supplier is absorbed by the expaneded business.
3.the supplier could be prevented from supplying other manufacturers.
4.Costs of components and supplies for the manufacturer could be controlled.


IGSCE Business Studies.... Chapter 2 Types of Business Activity...
Takeovers and Merger of Firms.. page 24...

Can ne one plz explain me the above lines

Thank you

In forward vertical integration, the company sets up subsidiaries that distribute or market products to customers or use the products themselves. An example of this is a movie studio that also owns a chain of theaters.

One of the best examples of vertically integrated companies is the oil industry. Oil companies, both multinational (such as ExxonMobil, Royal Dutch Shell, or BP) and national (e.g. Petronas) often adopt a vertically integrated structure. This means that they are active all the way along the supply chain from locating crude oil deposits, drilling and extracting crude, transporting it around the world, refining it into petroleum products such as Petrol/Gasoline, to distributing the fuel to company-owned retail stations, where it is sold to consumers.

We can integrate our customers into the downstream supply chain, too. PepsiCo did this when it began acquiring local bottlers. McDonald's practices the same with its extensive franchise network. Forward integration ensures a ready and willing outlet for our products.

Forward integration also allows us to link already existing control over the production process with the way our customers sell our products. If creating a brand is an important differentiating strategy to your company, then forward integration may assist the process: Monfort Beef Co. of Greeley, Colo. (now a division of ConAgra) bought up meatpacking and distribution operations to complement their cattle feedlot operations. They were then able to successfully differentiate their own brand by promoting the quality control they had over the entire process.

Differentiating your company from the competition -- especially if your products are commodities -- comes from integrating part of your customers' needs into your operation. For example, some metal distributors now have transitioned into metal service centers. This differentiation greatly enhances the value of dealing with those service-oriented companies versus the competition that fails to punch, cut, or process the material.




In backward vertical integration, the company sets up subsidiaries that produce some of the inputs used in the production of its products. For example, an automobile company may own a tire company, a glass company, and a metal company. Control of these three subsidiaries is intended to create a stable supply of inputs and ensure a consistent quality in their final product. It was the main business approach of Ford and other car companies in the 1920s, who sought to minimize costs by centralizing the production of cars and car parts..
We can integrate the inputs into our manufacturing operation as well -- essentially looking upstream in our value chain. The major automotive manufacturers routinely practice this by producing their own engines and transmissions that go into their cars. Hewlett-Packard does the same thing by manufacturing its own specialized integrated circuits for use in their laser printers, shortening response time to changing market conditions.

Backward integration improves control over proprietary knowledge critical to our final product. This avoids giving suppliers information and control over a component that increases their bargaining power. For years Polaroid internally produced many of its proprietary components for this very reason.

Backward integration enables us to produce our own components with specific, unique features that distinguish our products from our competitors'. Zacky Farms of South El Monte, Calif., for example, grows its own poultry, enabling Bob Zacky to claim there's something special included in his chickens that no other distributor offers.

If you view McDonald's, for example, as primarily a food manufacturer, backwards vertical integration would mean that they would own the farms where they raise the cows, chickens, potatoes and wheat as well as the factories that processes everything and turns it all into food. Forwards vertical integration would imply that they own the distribution centers for every area and the fast food retailers. Balanced vertical integration would mean that they own all of the mentioned components.






samajh aayi ya gayi ?

aray yar, many many thanks.....
masla yeh hay ka exam mien buhut pecheda questions hal karnay phartay hay, or book mien bas ik page mien kuch lines likh kay samjhtay hay mujh jaisay khali damagh walo kay bhejay mein baat ghus gayee ..... I was looking for more details.... like the one above

JazakhAllah siso

Liken yeh kaafi nahi hay........ ab mien nay teacher dhond le hay, ab to tang karti rahongi apko

G siso, yeh parh kar hee andaza ho gaya tha k details mein nahi bataya kuch...
mujhay laga aapko bhi aik line mein hee samjhana hai.. isi liye zara mukhtasir bayan kiya mein nay... Details chaheye with examples to Mein hoon na...

magar sisso,wohi poochna jo mujhay bhi aata ho...abhi mein nay bhi M.Ba complete nahi kiya



agar mujhay na bhi aata ho to aapko matlooba details muyassar bhi kar sakti hoon...

Thank you so much.........

:D ap fikr na karein isa he hoga

mujhhay iski zururat to naheen,lekin knowledge mein zuroor izafa huwa khususan mcDonald wali misaal se
so when are you completing your MBA
and what are your future plans after completion.

future plans

M.Ba kar loon ya PHD, aagay ja kar to haandi roti karni hai har haal mein

to haandi roti abhi naheen karteen kya hain jee?

aur parh likh kar haandi roti karnay ka apna hi lutf hai