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INTEGRATION DIVERSIFICATION PORTER’S FIVE
STRATEGIES STRATEGIES COMPETITIVE
FORCES
HORIZONTAL VERTICAL
INTEGRATION INTEGRATION
when a company that
An action where a
operates within one
company acquires
section of the overall
another company that
supply chain acquires
is essentially doing the
another company
same thing
within that same
supply chain

INTEGRATION STRATEGY
FORWARD INTEGRATION
A type of vertical integration that extends to the next levels of the supply
chain, aiming to lower production costs and increase the efficiency of the
firm.

A business strategy that involves expanding your business to control more of


your supply chain in the direction of the customer.

For a forward integration to be successful, a company needs to gain


ownership over other companies that were once customers.

INTEGRATION STRATEGY
Manufacturing
A bicycle tire manufacturer who begins manufacturing bicycles.

INTEGRATION STRATEGY – Forward Integration


Logistics
An ecommerce firm that begins a delivery service to reach the customer
without the services of delivery companies.

INTEGRATION STRATEGY – Forward Integration


Customer Service
An ecommerce company insources customer service functions that were
previously outsourced.

INTEGRATION STRATEGY – Forward Integration


BACKWARD INTEGRATION

A form of vertical integration in which a company expands its role to fulfill


tasks formerly completed by businesses up the supply chain.

Companies often complete backward integration by acquiring or merging


with these other businesses, but they can also do so on their own.

Companies pursue backward integration when it is expected to result in


improved efficiency and cost savings.

INTEGRATION STRATEGY
Manufacturing
A manufacturer of coffee begins to run its own coffee plantations.

INTEGRATION STRATEGY – Backward Integration


Retailer
A fashion retailer begins designing and manufacturing its own line of clothing.

INTEGRATION STRATEGY – Backward Integration


Services
A software consulting firm begins to develop its own software products.

INTEGRATION STRATEGY – Backward Integration


INTEGRATION STRATEGY
HORIZONTAL INTEGRATION

The acquisition of a business operating at the same level of the value chain in
a similar or different industry.

When a company wishes to grow through horizontal integration, its aim is to


acquire a similar company in the same industry.

Companies may choose to undergo horizontal integration in order to


increase their size, diversify product or services offerings, achieve economies
of scale, or reduce competition

INTEGRATION STRATEGY
Proctor & Gamble’s 2005 acquisition of Gillette is a
good example of a horizontal merger which realized
economies of scope.

INTEGRATION STRATEGY – Horizontal Integration


Business Examples

INTEGRATION STRATEGY – Horizontal Integration


HORIZONTAL INTEGRATION
VERTICAL INTEGRATION
DIVERSIFICATION

A business owner needs to consider efficient diversification strategies to build


a competitive advantage, to achieve economies of scale or scope, and/or
to take advantage of a financial opportunity that aligns with the business'
strategic plan.

DIVERSIFICATION STRATEGY
RELATED DIVERSIFICATION

A process that takes place when a business expands its activities into product
lines that are similar to those it currently offers.

With a related diversification strategy you have the advantage of


understanding the business and of knowing what the industry opportunities
and threats are; yet a number of related acquisitions fail to provide the
benefits or returns originally predicted.

DIVERSIFICATION STRATEGY
DIVERSIFICATION STRATEGY
UNRELATED DIVERSIFICATION

It is when a business adds new, or unrelated, product lines or markets.

DIVERSIFICATION STRATEGY
UNRELATED DIVERSIFICATION

DIVERSIFICATION STRATEGY
COMPETITIVE FOCES
Porter's Five Forces is a simple but powerful tool for
understanding the competitiveness of your
business environment, and for identifying your
strategy's potential profitability

- Understanding Porter's Five Forces and how they


apply to an industry, can enable a company
adjust its business strategy to better use its
resources to generate higher earnings for its
investors.
The nature and rivalry among the existing
competitors

Refers to the extent to which firms within the


an industry put pressure on one another and
limit each other’s profit potential
The threat of new entrants who could become
competitors

Refers to the threat that new competitors


pose to current players within an industry
The threat of substitute products or services to
the organization’s product or services

The level of risk that a company faces from


replacement by its substitutes
The threat arising from the power of suppliers

Suppliers increase competition within an


industry by threatening to raise prices.
The threat arising bargaining power of buyers

Refers to the pressure consumers can exert on


businesses to get them to provide quality
products, better consumer service, and lower
prices
MICHAEL PORTER
Once your analysis is complete, it's time to implement a strategy
to expand your competitive advantage. To that end, Porter
identified three generic strategies that can be implemented in
any industry (and in companies of any size).
Differentiation
To implement this strategy, make the company's products
significantly different from the competition, improving their
competitiveness and value to the public. It requires both good
research and development plus effective sales and marketing
teams.

- You target a broad market (high demand), but your product or


service has unique features. With this strategy, you make your
product as exclusive as possible, making it more attractive than
comparable products offered by the competition.
Cost leadership
Your goal is to increase profits by reducing costs while charging
industry-standard prices, or to increase market share by
reducing the sales price while retaining profits.

You target a broad market (large demand) and offer the lowest
possible price. There are 2 options within this course. You can opt
to keep costs as low as possible; or ensure that you have a larger
market share with average prices. In both cases, the point is to
keep the company costs as low as possible. The consumer price
is a different story.
FOCUS
A successful implementation means the company selects niche
markets in which to sell their goods. It requires an intense understanding
of the marketplace, its sellers, buyers and competitors.

COST FOCUS DIFFERENTIATION FOCUS


In this strategy, you choose to target a This strategy often involves strong brand
clear niche market and through loyalty among consumers. It’s very
understanding the dynamics of the important to ensure that your product
market and the wishes of the consumers, remains unique, in order to stay ahead of
you can ensure that the costs remain low possible competition.
“Strategy is about making choices, trade-offs;
it’s about deliberately choosing to be different.”

- Michael Porter