Integration Bringing Together

Integration Bringing Together

Integration, bringing together industrial activities under a unified control. It may take three forms: vertical, horizontal or diagonal.

(1)Vertical integration increases the number of processes in which a financier is engaged. Examples of 'backward integration' are the entry by a car firm into the making of car bodies, the acquisition by a tyre manufacturer of rubber plantations. Forward integration' is represented by brewers and petrol companies that own or in other ways (by long-term contracts) control retail outlets. In these examples the manufacturer has moved a stage backward or forward in the chain which leads from material and component to manufacture and sale. Finns move in these directions in order to lower costs, ensure sources of supply, secure more control over quality, or establish a closer connection with the market for their products.

(2) Horizontal or lateral integration is expansion in one process. 'Horizontal' integration refers to the amalgamation of firms making the same product, e.g. the formation of the Imperial Tobacco Company by a confederation of independent firms. 'Lateral' integration may be used to refer to the growth of firms in related or different products as in Imperial Chemical Industries, a firm which makes man-made fibres, dyestuffs, non-ferrous metal products and many others. Firms spread in this way partly because similarities in technique or in raw materials lead them to take up a diversity of products, or as an insurance against fluctuations in the markets for individual products.

(3) Direct integration connotes the existence of (ancillary) service activities which fit 'slantwise' into the main activity of a firm, e.g. a machine-repairing service or carpenters on the staff may make for convenience and economy.

A financier may integrate in all these ways and bring within its area of co-ordination products and processes which it would have otherwise to buy in the market. The method of integration may be either by setting up factories to manufacture components or by acquiring existing enterprises and obtaining the benefits of their employees and experience,



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