Develop specific economies of scale

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Question: Horizontal integration is an action where a company acquires another company that is essentially doing the same thing, e.g. when a biscuit company decides to buy another biscuit company. This type of integration is the type that you would see when one company is looking to develop some type of monopolistic advantage by reducing competition and increasing market share in order to develop specific economies of scale.

Vertical integration is when a company that operates within one section of the overall supply chain acquires another company within that same supply chain, e.g. when a biscuit company decides to buy the trucking company that distributes the biscuits to retailers or decides to buy the company that provides the raw ingredients for the biscuits. This type of integration is the type you would see when one company is looking to cut overall costs and potentially even speed up the entire supply chain (or at least tailor the activities of the trucking company or the raw ingredient company to their own specific requirements).

Diversification is one of the strategies pursued by firms wishing to grow in newer markets and by launching newer products. Diversification usually entails the firms entering new markets in the industry in which they are already present by launching newer products. Note the emphasis on new markets and new products as diversification is not only about entering newer markets but also with newer products. For instance, launching detergents and other hygiene based products by firms that already have soaps and other personal care products is one form of diversification wherein the firms launch an entirely new product line aimed at targeting newer market segments. Similarly, innovating and inventing newer products is another way of diversification, which can extend beyond the existing industry in which the firms operate. The best example of this type of diversification is launching mobile payment systems by mobile telephony companies wherein they tap newer market segments with newer product and service lines.

Reference no: EM132307548

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