Business Studies – 1.3.3 Why some businesses grow and others remain small | e-Consult

Horizontal Integration: This involves acquiring or merging with competitors in the same industry. The goal is to increase market share and reduce competition. Example: A large supermarket chain acquiring a smaller supermarket chain.

• Advantages:
• Increased Market Share & Economies of Scale: As mentioned above, this leads to greater pricing power and cost reduction.
• Reduced Competition: Less intense price wars and potentially higher profitability.
• Expanded Distribution Networks: Access to the acquired company's existing distribution channels.
• Disadvantages:
• Antitrust Concerns: Regulators may block mergers that create monopolies or significantly reduce competition.
• Integration Challenges: Combining operations and cultures can be difficult.
• Potential for Overcapacity: If demand doesn't keep pace with increased production capacity.

Vertical Integration: This involves acquiring or merging with companies at different stages of the supply chain. There are two main types: backward integration (acquiring suppliers) and forward integration (acquiring distributors). Example: A car manufacturer acquiring a tire company (backward integration) or a clothing retailer opening its own manufacturing plant (forward integration).

• Advantages:
• Reduced Costs: Eliminating supplier or distributor markups can lower costs.
• Improved Quality Control: Greater control over the supply chain can lead to higher quality products.
• Guaranteed Supply: Backward integration ensures a reliable supply of inputs.
• Increased Control over Distribution: Forward integration allows the company to directly control how its products are sold.
• Disadvantages:
• High Capital Investment: Acquiring or building new facilities can be expensive.
• Reduced Flexibility: Less ability to switch suppliers or distributors if needed.
• Potential for Inefficiency: If the acquired companies are not well-managed.