Read and respond in no fewer than 50 words to at least 2 of your peers’ posts.
42429Read and respond in no fewer than 50 words to at least 2 of your peers’ posts.
Peer 1: A company’s rationale when it comes to engaging in vertical integration allows the company to reduce costs for numerous areas of production (Investopia, 2019). Quality control is also tightened with vertical integration. The flow and control of information to the supply chain improves. The rationale of the vertical integration approach is value is created and the potential for profit is increased due to the overall better control of the company’s operations. Cost to the company can be reduced such as transportation, transaction, and business to business marketing. Vertical integration also plays a role in reducing the suppliers and buyer’s power of the company. The middleman is essentially cut out, the middleman then becomes wholesalers and retailers.
The rationale for company’s engaging in horizontal integration is the reduced competition in the industry, increase market power, and the increase of synergy (Tarver, 2019). Horizontal integration happens when two companies in the same industry decide to unite as one. An example of horizontal integration is Disney’s purchase of Pixar in 2006. Disney was stagnant in the market until it bought Pixar. The companies were competing in the same animation type movies and were able to merge their technology together, increasing their market share and profitability (Tarver, 2019). The rationale for this integration is to merge companies and create more profit.
References
Investopedia. (2019, March 12). When does it makes sense for a company to pursue vertical integration? Retrieved from https://www.investopedia.com/ask/answers/012715/when-does-it-makes-sense-company-pursue-vertical-integration.asp
Tarver, E. (2019, April 09). Horizontal Integration: Benefits and Drawbacks. Retrieved from https://www.investopedia.com/ask/answers/051415/what-are-advantages-and-disadvantages-horizontal-integration.asp
Peer 2:Vertical and horizontal integration is used in organizations to expand their business operations. The rationale for vertical
integration is to reduce production costs, ensure tighter quality control, have access to new distribution channels, more profits, and
a better flow of information across the supply chain. Through vertical integration, an organization can eliminate the middleman
and go directly through wholesalers and distributors(Investopedia, 2015). It is also important because it sells products directly to
the customers, guarantees regulation in the production process, and it reduces delivery and transportation delays (Tarver, 2019).
The rationale for horizontal integration is an organization strengthening its position in the industry. The purpose is company
growth, increase product differentiation, achievement of economies of scale, and reducing competition. This strategy often leads
to consolidation (Jurevicius, 2013). Sometimes organizations will merge with similar organizations in other countries in order to
have overseas operations. If successful, the result of horizontal integration is to be able to make more money together than they
would independently. Lastly, some more positives would be that costs can be cut by sharing technology, marketing, research and
development, production, and distribution (Tarver, 2019).
References:
Investopedia. (2015, January 27). When Does It Make Sense For a Company to Pursue Vertical Integration? Retrieved from
https://www.investopedia.com/ask/answers/012715/when-does-it-make-sense-company-pursue-vertical-integration.asp
Jurevicius, O. (2013, March 24). Horizontal Integration. Retrieved from
https://www.strategicmanagementinsight.com/topics/horizontal-integration.html
Tarver, E. (2019, April 20). Horizontal vs. Vertical Integration: What’s the Difference? Retrieved from
https://investopedia.com/ask/answers/051315/what-difference-between-horizontal-integration-and-vertical-integration.asp
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