Toward a monopoly horizontal and vertical integration answers

Running head: VERTICAL INTEGRATION Vs HORIZONTAL INTEGRATION 1

VERTICAL INTEGRATION Vs HORIZONTAL INTEGRATION 6

Vertical integration vs horizontal integration

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Vertical integration V.S horizontal integration

When a company wants to expand its business, they often consider about integrating and merging. However, they are different integration and merger activities with different market structures or industries (Vossoughi, 2012). There were two common types of integration and metering activities which are vertical integration and horizontal integration. Although integration and merging activities could improve the expansion of firm’s business to achieved the economics of scope, there are risks existing among those activities (Tilley, 2015). Therefore, managers should have incentive and ability to make optimal decision to reduce potential and possible risks through reaching (Tilley, 2015). It is also important for the managers to make the right decisions on which integration should they promote in order to significantly increase the firm’s profitability as well as improve their profit growth rates (Vossoughi, 2012).

Vertical integration is the situation whereby a company expands its business into different steps of a production path. These steps may include steps such as the manufactures owning all their suppliers or even their distributor (Tilley, 2015). Vertical integration occurs when a company is trying to acquire a company which contains the inputs, supply chains, supply raw materials, or intermediate goods for producing the firm’s finished productions. Through the strategy of vertical integration, the firm can produce goods in more efficient path by reducing the transaction cost and turnover problems (Vossoughi, 2012). Vertical integration therefore helps companies cut on the costs they incur whereby transportation expenses and turnaround time are minimized. However, there are also some disadvantages existing with the operation of vertical integration. One of the major disadvantages would be that the firm will no longer specialize in what they do best (Tilley, 2015). The company can also prefer to rely on the expertise and the economies of scale of a vendor instead of being vertically integrated. Vertical integration occurs when a company takes control over its producers and distributors. It can either be carried out in backward integration and forward integration (Tilley, 2015). A backward integration is whereby the company expands backwards on its production path while in the forward integration, a company expands forward in the production path towards the distribution path (Vossoughi, 2012).

One of the famous example of successful vertical integration is Apple company. It is a well-known company that has merging in a vertical integration. The apple company helps to manufacture A-series chips for the iPhones and iPads (Tilley, 2015). The custom touch ID fingerprint sensor is also manufactured by the Apple company. The author Aaron Tilley wrote a new article “Changes at Apple Hint at an Even Greater Level of Vertical Integration,” indicated that Apple will become more engaged at vertical integration with the direction of the new COO named Jeff William and new senior vice president of hardware named Johnny Srouji (Vossoughi, 2012). Under Srouji’s new way of management, he would more concentrated at creating and developing its own intelligent property in order to make Apple’s production differentiated as well as competitive. From past to now, Apple company had become very popular with their developed and impressive high technologies (Tilley, 2015). The creativity and innovation which Apple enhanced has lead them into a better performance.

In 2010, the new discovery chip A4 was introduced with the sale of first – generation iPad. It blew up consumer’s attractive as well as their consumption toward their first iPad (Tilley, 2015). In the path of vertical integration, Apple company was continuously focus their performance at vertical integration at their inputs such as chip. It resulted that intermediated good like chips had play a big role in Apple company’s future performances which could reduce their transportation cost and approach at economic of scale in the long run. With the promoted and professional experimental and discovery, the vertical integrated Apple company that concentrated on developing chips has lead them to become major chip makers all around the world (Tilley, 2015). It is rational that Apple has made large path which introduce the new enhanced processor which named A7 with the establish of iPhone 5s. Not surprise, there was another movement which they provide the new A9s for the newest iPad series iPad Pro (Vossoughi, 2012).

The Apple’s accomplishment has continued to expand (Tilley, 2015). This is by expanding its vertical integration through the merging of a laboratory to developing LCD and OLED screen technologies at Taiwan, China in the year 2015In the same year the company paid $18.2 million for a manufacturing facility that was 70000 square-foot in North San Jose (Tilley, 2015). This has therefore enabled Apple to be flexible on its supply chain. The Apple company operates in a backward integration which makes it more flexible in its manufacturing capabilities. There is also the forward integration whereby in its model, its products are sold in areas that the company already owns (Vossoughi, 2012). This does not include the best retailers which enables the business to be well controlled in its distribution sectors. The expectations of the consumers are well raised by their sellers which helps them manage to provide their integrated experiences. However, most companies are not able to give experiences that are of any worth to their clients. It therefore shows what really goes on in the organization (Vossoughi, 2012).

Horizontal integration on the other hand is the situation whereby the production of goods and services in a company is greatly increased on the supply chain (Vossoughi, 2012). This is done through merging or even internal expansions of the firm with other firms to bring about goods and services. Through the processed of horizontal integration, it will gain the advantages such as the obtainment of market powers to approaching to monopoly. At this level, the firms are able to share their resources (Tilley, 2015). In addition, when the combination for the two firms or more than two firms is formed, there will be less firms competes in the market (Vossoughi, 2012). This means that the firms will become less competitive and gain more market shares which lead into making higher profits with the acquisition of producing similar goods. The more the companies conduct the horizontal integration the fewer the completion will be thus it will be an oligopoly. Horizontal integration creates an advantage such as increased market power, minimized costs of international trade and also favorable economies of scale (Tilley, 2015).

To sum it up, the vertical integration and horizontal has the same major purpose which are the advancement of increasing probability (Vossoughi, 2012). As a manager, he or she should always take the responsibility to seeking into research and collect useful information in order to make right decisions. This is by ensuring they optimize on the sourcing by ensuring there is no overlap so that the shift can be easier on the company. This will help the different groups in your organization to work effectively thus encouraging growth in the organization. The employees will therefore work towards a common goal (Vossoughi, 2012). The organization should therefore ensure it has a goal that it aims at, employees who understand their tasks and responsibilities to the letter and also it should have individuals whose main aim is to bring integration so that there can be a better human connection in the organization (Tilley, 2015).

References Tilley, A. (2015). Changes at Apple Hint at an even greater level of vertical integration. Forbes, 1-4. Vossoughi, S. (2012). Today's Best Companies are Horizontally Integrated. Harvard Business Review, 1-4.