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STRATEGIC MANAGEMENT - Essay Example

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This essay discusses two techniques of integration that are used by firms to achieve economies of scale and gain competitive advantage over other firms. They are vertical and horizontal integration and they will be discussed with respect to the automobile company Toyota. …
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STRATEGIC MANAGEMENT
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Download file to see previous pages This is how a need for vertical integration springs in some businesses. The idea of vertical integration was made famous by Henry Ford. He wanted to make everything on his own without relying on any foreign trade. Vertical integration gives a firm monopoly power over other firms. A vertically integrated company has a flexible supply chain and therefore can afford to hold fewer inventories. Lowered costs and greater control are major advantages of vertical integration. The problem associated with vertical integration is that it is very hard and expensive to implement. It is also not easy to reverse vertical integration in a particular firm (The Economist, 2009). Horizontal integration, on the other hand, refers to a kind of ownership in which a firm merges or buys another company which is in the same business. For example an automobile company buying another automobile company will be an example of horizontal integration. It is the expansion or growth of the firm at the same level of the value chain. This means that an automobile company buying an investment firm will not come under horizontal integration. The merger should be between two firms involved in the same business activity. Horizontal integration also offers many advantages for a firm. It allows a firm to gain more market share by catering to more customers. It helps a company expand into newer markets. It also helps a company gain economies of scale and in turn increases the market power of the firm. The process of horizontal integration is also not easy to manage because there may be many differences between two firms that can cause problems. For example there can be a gap in technological expertise of firms or culture of the two firms can be different. These differences make...

The intention of this study is Toyota as a good example of vertical integration as it works closely with its supplier to assist them in their production of raw materials that are eventually used by Toyota in its cars. Toyota is not a fully vertically integrated firm but it applies the concept to a great extent. The company owns shares and stakes in its suppliers business and by doing so Toyota can exert its influence on its suppliers which is the main aspect of vertical integration. The main focus of the company is to develop a supply chain that can eventually add value to the end users and at the same time can reduce costs related to inventory and supplies. Horizontal integration involves owning another business in the same industry. In the automobile industry, again, horizontal integration cannot work by the books. Toyota cannot buy other automobile companies because it is not feasible for Toyota. Instead horizontal integration works when firms in the similar business collaborate for a joint venture. This gives the two companies opportunity to work together but at the same time does not take toll on the management system. Handling two companies especially in the automobile sector can be a cumbersome tasks therefore joint ventures and collaborations work well instead. Toyota owns equity stakes in its supplier which allows the firm to control its supply side. Toyota is also holding equity in electric car manufacturer Tesla and this is an example of horizontal integration. ...Download file to see next pagesRead More
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