Post by khatunejannat on Feb 15, 2024 1:35:23 GMT -5
Any company aspires to grow, to conquer new markets, to increase its turnover and profits, etc. There are different ways to grow. In this post we are going to talk about two very common expansion strategies: vertical and horizontal integration. Vertical integration in the company In vertical integration, the company carries out different operations that could be carried out by other companies with the aim of reducing costs or to obtain more profit from these other branches of activity. The company expands its activity beyond the hard core of its business. As an example we could take a construction company that previously subcontracted certain tasks such as electrical or plumbing installations. With vertical integration, you would hire electricians and plumbers and purchase the necessary machinery and tools to carry out these processes. You would no longer have to pay those subcontracting companies and you would obtain the benefit corresponding to those activities.
Another example would be an oil company that covers all aspects of the oil business, which includes very different activities that different companies could carry out: exploration Cocos Islands Keeling Email List and drilling of new fields; crude oil transportation; refining and production of different fuels; distribution and sale of final products. Advantages and disadvantages of vertical integration The beneficial part of vertical integration would be the reduction of costs for the company, because it does not have to pay the profit of the subcontracting company. It would also be possible to have greater control over the production chain with a single address. Management will be more agile and we will not depend on third parties who may not be available when we need them. As disadvantages, we can consider that the integration process is not an easy task. We are talking about adding new functions to our core business that are unknown to us.
In principle, we do not have the appropriate personnel for these new tasks nor the management techniques necessary to do it well and provide benefits. It is the opposite path to subcontracting or outsourcing that gives very good results to many companies. Horizontal integration in the company With horizontal integration, new activities are not incorporated into the hard core of the business, but rather new companies are created or others are acquired to do something similar, but reaching more markets. For example, a company that has an establishment in one city decides to open the same establishment in other cities and create a chain of stores or restaurants. We could also use as an example a company that wants to expand internationally and to do so sets up subsidiary companies to serve the markets of those countries. Or you buy a company similar to yours already established in that foreign market.
Another example would be an oil company that covers all aspects of the oil business, which includes very different activities that different companies could carry out: exploration Cocos Islands Keeling Email List and drilling of new fields; crude oil transportation; refining and production of different fuels; distribution and sale of final products. Advantages and disadvantages of vertical integration The beneficial part of vertical integration would be the reduction of costs for the company, because it does not have to pay the profit of the subcontracting company. It would also be possible to have greater control over the production chain with a single address. Management will be more agile and we will not depend on third parties who may not be available when we need them. As disadvantages, we can consider that the integration process is not an easy task. We are talking about adding new functions to our core business that are unknown to us.
In principle, we do not have the appropriate personnel for these new tasks nor the management techniques necessary to do it well and provide benefits. It is the opposite path to subcontracting or outsourcing that gives very good results to many companies. Horizontal integration in the company With horizontal integration, new activities are not incorporated into the hard core of the business, but rather new companies are created or others are acquired to do something similar, but reaching more markets. For example, a company that has an establishment in one city decides to open the same establishment in other cities and create a chain of stores or restaurants. We could also use as an example a company that wants to expand internationally and to do so sets up subsidiary companies to serve the markets of those countries. Or you buy a company similar to yours already established in that foreign market.