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Corporate Strategy: Horizontal Integration, Vertical Integration, and Strategic Outsourcing

This document discusses three corporate strategies: horizontal integration, vertical integration, and strategic outsourcing. Horizontal integration involves acquiring competitors to reduce costs, increase value through bundling and cross-selling, and gain bargaining power. Vertical integration expands operations upstream or downstream along the supply chain. Strategic outsourcing involves letting independent entities perform some business activities to reduce costs, gain differentiation, and allow companies to focus on core competencies. The document outlines benefits and drawbacks of each strategy.

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236 views

Corporate Strategy: Horizontal Integration, Vertical Integration, and Strategic Outsourcing

This document discusses three corporate strategies: horizontal integration, vertical integration, and strategic outsourcing. Horizontal integration involves acquiring competitors to reduce costs, increase value through bundling and cross-selling, and gain bargaining power. Vertical integration expands operations upstream or downstream along the supply chain. Strategic outsourcing involves letting independent entities perform some business activities to reduce costs, gain differentiation, and allow companies to focus on core competencies. The document outlines benefits and drawbacks of each strategy.

Uploaded by

sanjeev_bsg
Copyright
© © All Rights Reserved
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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CorporateStrategy:
Horizontal
Integration,
Vertical
Integration,and
Strategic
Outsourcing

Overview
Horizontalintegration
Theprocessofacquiringormergingwithindustry
competitors
Acquisitionandmerger

Verticalintegration
Expandingoperationsbackwardintoanindustrythat
producesinputsforthecompanyorforwardintoan
industrythatdistributesthecompanysproducts

Strategicoutsourcing
Lettingsomevaluecreationactivitieswithinabusinessbe
performedbyanindependententity

BenefitsofHorizontalIntegration
Reducingcosts
Increasingvalue
Productbundling
Crossselling

Managingindustryrivalry
Increasingbargainingpower
Marketpower(monopolypower)

DrawbacksandLimitsofHorizontal
Integration
Majorityofmergersandacquisitionsdonot
createvalue
Implementingahorizontalintegrationstrategy
isnoteasy
Mergersandacquisitionsoftenfailtoproduce
theanticipatedgains
Canbringthecompanyintoconflictwith
antitrustlaw

VerticalIntegration:StagesintheRaw
MaterialtoConsumerValueChain

TheRawMaterialtoConsumerValueChain
inthePersonalComputerIndustry

FullandTaperIntegration

IncreasingProfitabilityThrough
VerticalIntegration

Buildingbarrierstoentry
Facilitatinginvestmentsinspecializedassets
Protectingproductquality
Improvedscheduling

ArgumentsAgainstVerticalIntegration
Costdisadvantages
Companyownedsuppliersthathavehighercosts
thanexternalsuppliers

Rapidtechnologicalchange
Tyingacompanytoanobsolescenttechnology

Demandunpredictability
Difficultyofachievingclosecoordinationamong
verticallyintegratedactivities

Bureaucraticcosts

AlternativestoVerticalIntegration:
CooperativeRelationships
Shorttermcontractsandcompetitivebidding
Strategicalliancesandlongtermcontracting
Buildinglongtermcooperativerelationships
Hostagetaking
Crediblecommitments
Maintainingmarketdiscipline
Parallelsourcingpolicy

StrategicOutsourcingofPrimaryValue
CreationFunctions

BenefitsofOutsourcing
VirtualOutsourcing
Reducingcosts
Thespecialistcompanyislessthanwhatitwouldcostto
performtheactivityinternally

Differentiation
Thequalityoftheactivityperformedbythespecialistis
greaterthaniftheactivitywereperformedbythecompany

Focus
Distractionsareremoved;thecompanycanfocusattention
andresourcesonactivitiesimportantforvaluecreationand
competitiveadvantage

IdentifyingandManagingtheRisksof
Outsourcing
Holdup
Thecompanycanbecometoodependentonthe
provideroftheoutsourcedactivitysothatthe
providercanraiseprices

Schedulingofactivities
Lossofcontrolcanresultindistortedsignalsinthe
supplychain

Lossofinformation
Contactwiththecustomermaybelost

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