Types Of Vertical Integration Strategy

Vertical integration strategy is a way through which companies try to hold their upstream suppliers and downstream buyers. There are three types of vertical integration and vertical Integration strategies are the combination of those strategies that are applied in the organization to acquire control over suppliers, competitors & distributors. Following are the three main types of vertical integration strategy, which are also collectively known as vertical integration strategies.

1. Forward Integration Strategy
2. Backward Integration Strategy
3. Horizontal Integration Strategy 

   Vertical Integration Strategies are very useful for the organization. Following points show the benefits associated with the vertical integration strategies.

    1. The organization acquires the control over its competitors by the application of vertical integration strategies
    2.The organization takes control of the activities of its suppliers through implementation of vertical integration strategies
    3.The organization gets control of functioning of its distributors with the implementation of vertical integration strategies

Types of Vertical Integration Strategy

    Forward Integration Strategy

  This is first type of the vertical integration strategy. In this vertical integration strategy the transactions between the organization & its customers are included. The organizations sells its products to intermediaries like distributors, retailers etc because it is not possible for it to sell its products directly to the final customers. When organization gets much control over or even ownership of its retailers or distributors then it applies forward integration strategy. The control can be gained over the distributor, supplier & competitor.

   Backward Integration Strategy

  Backward integration strategy is the second utmost important type of vertical integration strategy. When the organization needs to acquire the control over the functioning of its suppliers, backward integration strategy is considered by the organization. Suppliers provide required input materials to both distributors & retailers. The distributors & retailers adopt this vertical integration strategy in order to get control of the operation & functioning of their suppliers. The application of backward integration strategy is quite useful when the suppliers are not reliable enough to provide required material on consistent basis. Also when the suppliers charge too much amount for their services & cannot properly fulfill the needs of the organization, then this vertical integration strategy is the only option for the organization to get control over the functioning of its suppliers & eliminate all the problems that come in the way of smooth running of the business.

   Horizontal Integration Strategy

  The third and last type of vertical integration strategy is horizontal integration strategy. Acquiring control over the operations & functioning of the competitors of the organizations is referred to horizontal integration strategy. In recent years, horizontal integration strategy is frequently used as growth strategy by the organization in their strategic management. Through increasing number of acquisitions, mergers & takeovers the organization not only increases its resources but also obtains large economies of scale. The effectiveness of the organization is also enhanced through horizontal integration strategy.
In horizontal integration there is increased control over the functioning & operations of the competing organizations through purchasing & hostile takeover. This provides new opportunities to organization to be availed. The organization gets control over the other organization that works in the same industry.


REFERANCES: http://www.businessstudynotes.com/finance/strategic-managment/types-vertical-integration-strategy/