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Objectives
Define horizontal integration List and explain the advantages and disadvantages of horizontal integration Define vertical integration Explain the three types of vertical integration List and explain the advantages and disadvantages of Vertical integration
is the degree to which a firm owns its upstream suppliers and its downstream buyers. Example:
Carnegie Steel Company owned mills where the steel was manufactured, mines where the iron ore was extracted, coal mines that supplied the coal, ships and railroads that transported the material, etc.
Backward (upstream) vertical integration: this is when a company owns some of the subsidiaries that produce some of the inputs used in the production of its products.
Forward vertical integration: this is when a company owns the subsidiaries that market the product.
Balanced Vertical Integration: is a company that sets up subsidiaries that supply them with inputs as well as market their product.
Reduce transportation cost Improve supply chain coordination More oppertunities to differeniate by means of increased control of inputs Capture upstream and downstream profits Increase entry barriers to potiental competitors
Capacity balancing: Making sure that inputs will match ouputs at all levels Potentially higher cost due to the lack of supplier compition Decreased Flexability Developing new competencies may comprimise existing competencies Increase bureaucratic costs Monopolization of markets
Quiz
What is Horizontal Integration? What are two advantages of horizontal integration? What are two disadvantages of horizontal integration?
Quiz
Define Vertical Integration What are the three types of vertical integration and explain each. What are 2 advantages of vertical integration? What are 2 disadvantages of vertical integration?
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