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INTEGRATION DIVERSIFICATION PORTER’S FIVE
STRATEGIES STRATEGIES COMPETITIVE
FORCES
 HORIZONTAL VERTICAL
INTEGRATION INTEGRATION
when a company that
An action where a
operates within one
company acquires
section of the overall
another company that
supply chain acquires
is essentially doing the
another company
same thing
within that same
supply chain

INTEGRATION STRATEGY
 FORWARD INTEGRATION
A type of vertical integration that extends to the next levels of the supply
chain, aiming to lower production costs and increase the efficiency of the
firm.

A business strategy that involves expanding your business to control more of

your supply chain in the direction of the customer.

For a forward integration to be successful, a company needs to gain

ownership over other companies that were once customers.

INTEGRATION STRATEGY
 Manufacturing
A bicycle tire manufacturer who begins manufacturing bicycles.

INTEGRATION STRATEGY – Forward Integration

 Logistics
An ecommerce firm that begins a delivery service to reach the customer
without the services of delivery companies.

INTEGRATION STRATEGY – Forward Integration

 Customer Service
An ecommerce company insources customer service functions that were
previously outsourced.

INTEGRATION STRATEGY – Forward Integration

 BACKWARD INTEGRATION

A form of vertical integration in which a company expands its role to fulfill

tasks formerly completed by businesses up the supply chain.

Companies often complete backward integration by acquiring or merging

with these other businesses, but they can also do so on their own.

Companies pursue backward integration when it is expected to result in

improved efficiency and cost savings.

INTEGRATION STRATEGY
 Manufacturing
A manufacturer of coffee begins to run its own coffee plantations.

INTEGRATION STRATEGY – Backward Integration

 Retailer
A fashion retailer begins designing and manufacturing its own line of clothing.

INTEGRATION STRATEGY – Backward Integration

 Services
A software consulting firm begins to develop its own software products.

INTEGRATION STRATEGY – Backward Integration

INTEGRATION STRATEGY
 HORIZONTAL INTEGRATION

The acquisition of a business operating at the same level of the value chain in
a similar or different industry.

When a company wishes to grow through horizontal integration, its aim is to

acquire a similar company in the same industry.

Companies may choose to undergo horizontal integration in order to

increase their size, diversify product or services offerings, achieve economies
of scale, or reduce competition

INTEGRATION STRATEGY
 Proctor & Gamble’s 2005 acquisition of Gillette is a
good example of a horizontal merger which realized
economies of scope.

INTEGRATION STRATEGY – Horizontal Integration

 Business Examples

INTEGRATION STRATEGY – Horizontal Integration

HORIZONTAL INTEGRATION
VERTICAL INTEGRATION
 DIVERSIFICATION

A business owner needs to consider efficient diversification strategies to build

a competitive advantage, to achieve economies of scale or scope, and/or
to take advantage of a financial opportunity that aligns with the business'
strategic plan.

DIVERSIFICATION STRATEGY
 RELATED DIVERSIFICATION

A process that takes place when a business expands its activities into product
lines that are similar to those it currently offers.

With a related diversification strategy you have the advantage of

understanding the business and of knowing what the industry opportunities
and threats are; yet a number of related acquisitions fail to provide the
benefits or returns originally predicted.

DIVERSIFICATION STRATEGY
DIVERSIFICATION STRATEGY
 UNRELATED DIVERSIFICATION

It is when a business adds new, or unrelated, product lines or markets.

DIVERSIFICATION STRATEGY
 UNRELATED DIVERSIFICATION

DIVERSIFICATION STRATEGY
COMPETITIVE FOCES
Porter's Five Forces is a simple but powerful tool for
understanding the competitiveness of your
business environment, and for identifying your
strategy's potential profitability

- Understanding Porter's Five Forces and how they

apply to an industry, can enable a company
adjust its business strategy to better use its
resources to generate higher earnings for its
investors.
The nature and rivalry among the existing
competitors

Refers to the extent to which firms within the

an industry put pressure on one another and
limit each other’s profit potential
The threat of new entrants who could become
competitors

Refers to the threat that new competitors

pose to current players within an industry
The threat of substitute products or services to
the organization’s product or services

The level of risk that a company faces from

replacement by its substitutes
The threat arising from the power of suppliers

Suppliers increase competition within an

industry by threatening to raise prices.
The threat arising bargaining power of buyers

Refers to the pressure consumers can exert on

businesses to get them to provide quality
products, better consumer service, and lower
prices
MICHAEL PORTER
Once your analysis is complete, it's time to implement a strategy
to expand your competitive advantage. To that end, Porter
identified three generic strategies that can be implemented in
any industry (and in companies of any size).
Differentiation
To implement this strategy, make the company's products
significantly different from the competition, improving their
competitiveness and value to the public. It requires both good
research and development plus effective sales and marketing
teams.

- You target a broad market (high demand), but your product or

service has unique features. With this strategy, you make your
product as exclusive as possible, making it more attractive than
comparable products offered by the competition.
Cost leadership
Your goal is to increase profits by reducing costs while charging
industry-standard prices, or to increase market share by
reducing the sales price while retaining profits.

You target a broad market (large demand) and offer the lowest
possible price. There are 2 options within this course. You can opt
to keep costs as low as possible; or ensure that you have a larger
market share with average prices. In both cases, the point is to
keep the company costs as low as possible. The consumer price
is a different story.
FOCUS
A successful implementation means the company selects niche
markets in which to sell their goods. It requires an intense understanding
of the marketplace, its sellers, buyers and competitors.

COST FOCUS DIFFERENTIATION FOCUS

In this strategy, you choose to target a
clear niche market and through
understanding the dynamics of the
market and the wishes of the consumers,
you can ensure that the costs remain low
This strategy often involves strong brand
loyalty among consumers. It’s very
important to ensure that your product
remains unique, in order to stay ahead of
possible competition.
 “Strategy is about making choices, trade-offs;
it’s about deliberately choosing to be different.”

- Michael Porter