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Types Of Integration

Chapter 7. Types Of Integration. Horizontal Integration. Horizontal Intergration. A firm integrates with a firm which produces the same products and services. ( Horizontal integration refers to the combination of firms at the same stage of production of firms producing the same product . ).

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Types Of Integration

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  1. Chapter 7 Types Of Integration

  2. Horizontal Integration

  3. Horizontal Intergration • A firm integrates with a firm which produces the same products and services. • ( Horizontal integration refers to the combination of firms at the same stage of production of firms producing the same product. )

  4. Motives • 1. The firm becomes larger . It can enjoy the economics of scale. • 2. It can reduce the competition in the market. • 3. It can reduce the duplication of facilities. • 4. It can increase the turnover (營業額) of business.

  5. Example of horizontal integration . Cathay Pacific Airway Ltd took over Hong Kong Dragon Airlines Ltd . This is an example ofHorizontal Integration.

  6. Hong Kong Bank combined with the Hung Seng Bank, this is also an example of Horizontal integration.

  7. Questions

  8. Park’n Shop takeover Wellcome supermarket . Is it an example of Horizontal Integration?

  9. If Pizza Hut integrate with a flour making firm, is it an example of horizontal integration? No

  10. Then, what is this integration called?

  11. Vertical Integration

  12. Vertical Integration • A firm integrates with another firm which operates in different stages of production for a certain good. • ( Vertical Integration refers to the combination of firms engaging in different stages of production of the same product. )

  13. Motives • Motive: It can ensure a steady supply of raw materials.( Backward vertical integration) • Motive: It can ensure a steady market for its products.(Forward vertical integration)

  14. Example of Vertical Integration • Refers to the last questions. • Pizza Hut integrate with a flour making firm, it is backward vertical integration. • Remark: Vertical integration is “backward” when a firm combines with another in a preceding stage in the production process.

  15. Example of Vertical Integration • A car manufacturing corporation takes over a car selling agent. • In this case , it is forward integration.

  16. Remark of Forward Integration • Forward Integration occurs when a firm combines with another one which is in a latter stage in the production process.

  17. Motives for both Backward and Forward • 1. It can have a co-ordinated overall planning for the production. • 2. It is easier to collect information about the customer tastes (or raw materials) backward forward

  18. Questions

  19. A garment integrate with a boutique , what integration do it call? Forward integration

  20. No • If Sassoon integrate with a firm which produce soaps, is it a vertical integration?

  21. Then, what is this integration called?

  22. Lateral Integration

  23. Lateral Integration • A firm integrates with another firm which produces the related but not competitive products. • (It refers to the combination of firms producing related but not competitive products. )

  24. Motives 1. It can reduce risk by product diversification. 2. This can extend the brand-name to other products. 3. This can have greater flexibility in the use of raw materials.

  25. Example of Lateral Integration • Refers to the last question. • Sassoon integrate with a soap firm , it is not a vertical integration . It’s called Lateral Integration.

  26. Remark on Lateral Integration • It occurs when firms producing related but not competitive products combine together. • E.g. A firm producing Micro-computers combines with a firm which produces TV sets.

  27. Question

  28. City Bus combined with a bus making firm , is it an example of lateral integration? Yes

  29. If Café De coral integrate with KMB, does this kind of integration called lateral integration? No

  30. Then, what is this integration called?

  31. Conglomerate Integration

  32. Conglomerate Integration • A firm integrates with another firm which produces the unrelated products. • ( Conglomerate integration refers to the combination of firms engaging in different types of production. )

  33. Motives • This can reduce the risk by diversification. • This can extend the brand-name to other products. • The resources of the firm involved may be re-developed in a more profitable way.

  34. Example of conglomerate integration • The Hong Kong Land Ltd took over the Dairy Farm Co, Ltd and developed the estate Chi Fu Fa Yuen in Pokfulum area of Hong Kong island.

  35. Remark on Conglomerate Integration • It occurs when firms producing unrelated products combined together. • E.g.Hutchison International Ltd combined with the Whampoa Dockuyard Ltd

  36. Question

  37. A travel agent takes over a real estate firm. What kind of integration is this? Conglomerate integration

  38. Quick Test

  39. Lateral Integration • A fast-food shop took over a noodle shop. What type of integration is this ?

  40. Citic Pacific Ltd (a holding company with different lines of business such as trading, airlines, telecommunications and construction ) takes over Tai Cheong Hong ( a food wholesaler and retailer ). Which type of integration does this case belong to? Conglomerate Integration

  41. PLHKS 2000-2001 S.4A students • Chao Ngai 4A ( 3 ) • Cheung Ming Chu 4A ( 7 ) • Lam Oi Kwan 4A (17) • Lam Wing Yan 4A (18)

  42. The End

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