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INSTITUTE OF MANAGEMENT

CHRIST UNIVERSITY
HOSUR ROAD, BANAGALORE-560029

ARTICLE: COMPANIES WHICH SUCCESSFULLY


IMPLEMENTED VERTICAL INTEGRATION

Submitted to: -

Submitted By:-

Dr. Anirban Ghatak

Abhinandan Toshniwal 1527701

Associate Professor

Apurva Kumar 1527708

Institute of Management

Arpitha D 1527938

Christ University

Anjali Kumari 1527831


Harish 1527816
MBA F2

Vertical integration is one of the trending topics in the current industry scenario. In
the recent years we have seen a number of vertical integrations apart from the ones which
happened in the past such as Zaras implementation of both backward as well as the forward
integration in its business model, which provided the firm with a competitive advantage over
its rivals; another example could be of Apple who has implemented forward integration and
realized the importance of being in the distribution system; while a virtual merger between
RCom and Reliance Jio can also be considered as one of the most recent examples of vertical
integration, as RCom provides telecom towers on rent, and RJio has been able to lease these
towers at a rate much below the leasing price of industry average.
PayPal in 2005 acquired VeriSign, a third party payment gateway, and this deal of
$370 million happened mainly because VeriSign did not handled 70% of the transactions.
Hence the management later decided that instead of giving a hefty amount on a yearly basis
to VeriSign, why dont they buy it, which would ultimately reduce its overhead cost and also
generate revenue of around $100 million from its business with a expected growth of 20% on
a y-o-y basis, as it provides one of the most secured online transaction gateways. Through
this acquisition PayPal planned to expand its business base to small and medium business
enterprises which ultimately helped these businesses to expand its online presence. PayPal
came up with this idea at the time when internet was at its growth stage.
Amazon is another company which has successfully implemented vertical
integration in its business model. The company implemented backward integration when it
decided that not only it will be recognized as book seller but also as the publisher of the
books. For doing this the firm buys books directly from the publishing companies, thus it has
basically integrated itself in the role of publisher as if it owns the publishing company. The
strategy adopted by the firm is that, whenever a bookseller quotes the price of book for
selling on Amazon, it limits the power of the firm to play with the price quoted by the seller
as its his right only to make any changes in the price according to his wish. Hence to
eliminate this limitation the firm decided to purchase books at a cheaper rate directly from the
publishers and quote it to the customers at a much cheaper price. This idea has ultimately
given birth Amazons another project named Kindle, which provides access over lakhs of ebooks over a simple touch.
Starbucks, an American coffee chain shop, which was later acquired by TATA group;
also implemented backward integration by buying coffee farms in China, when they saw a
huge growth in the consumers of coffee. So in order to take competitive advantage from its
competitors such as Costa coffee, CCD, etc., the company decided to implement backward

integration by buying coffee farms so as to make the coffee available at a reasonable price to
its consumers. Another example of backward integration is McDonalds, another American
fast food giant, has performed backward integration by joining hands with its suppliers, e.g.,
for breads/buns they have joined hands with local bakery shops which provide them with
quality products, for vegetables they have joined hands directly with farmers, etc.
In Indian context ITC is the best example of any merger. It has performed many
consolidations in order to maintain its monopoly in the tobacco industry. It has also
implemented the backward integration by acquiring maximum number of farms which
produces tobacco; this strategy has helped them to become the market leader of the industry.

REFERENCES:

http://www.mbda.gov/blogger/mergers-and-acquisitions/5-types-company-mergers

http://trak.in/tags/business/2011/12/30/top-indian-mergers-acquistions-funding-deals2011/

http://smallbusiness.chron.com/examples-backward-vertical-integration-strategies14703.html

http://blog.ipleaders.in/10-biggest-ever-merger-acquisition-deals-in-india/

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