How To Choose Integration way for Business Growth

In 1901, Andrew Carnegie became one of the richest men in the globe when he sold Carnegie Steel for $480 million—equivalent to nearly $18 billion today. How did Carnegie Steel become so valuable? In part, because the business used a vertical integration way. Over the course of 26 years, Carnegie acquired sourcing, production, and distribution channels from mines to railroads, ultimately allowing his businesses to sell its products at lower prices than competitors.

The Carnegie Steel narrative is an epic one, but you don’t require to be a ruthless robber baron to debt integration strategies for your business. discover the two types of integration strategies and how you can use them in your ecommerce business.

What is an integration way?

An integration way is a procedure that businesses use to expand into recent areas of operations or acquire competitors. Integration strategies can enhance your competitive advantage, business productivity, trade distribute, or a combination of the three. There are two types of integration strategies: vertical and horizontal.

Businesses use integration strategies to achieve a variety of goals—like increased standard control, more efficient delivery to customers, or expansion into recent markets. 

How a vertical integration way works

In a vertical integration way, your business assumes increased control over the sourcing, manufacturing, or distribution of its products. This gives you a greater degree of control over the costs associated with production and distribution—allowing you to lower prices. You might also use a vertical integration way to boost standard assurance for your products. 

There are three main ways a business can pursue a vertical integration way:

1. Backward integration

With backward integration, your business extends control over its supply chain by integrating with raw material suppliers or manufacturing goods yourself. For example, if your online candle business purchases a tiny warehouse space and begins producing candles in-house, this would qualify as backward integration.

2. Forward integration

You can use forward integration to earnings control over activities further down the supply chain, like owning the distribution channels of your product, operating a delivery service, or handling post-purchase relationships by acquiring a customer service business. For example, if your t-shirt business sells products through third-event boutiques, you could use forward integration to switch to a direct-to-buyer (DTC) model by launching your own ecommerce website.

3. Balanced integration

Balanced integration is exactly how it sounds—a little bit backward and a little bit forward. A business that extends control over its supply chain and distribution channels is practicing balanced integration. For example, your coffee retail business can implement balanced integration by roasting its beans in-house and selling direct-to-buyer monthly subscription boxes.

Advantages and disadvantages of vertical integration

There are benefits and drawbacks to adopting either vertical and horizontal integration strategies, but keep in mind that you don’t require to fully commit to one way—you can always use elements of both.

Advantages

• expense funds. Backward integration allows your business to scale its control over materials and production processes, potentially lowering costs by reducing reliance on third-event vendors with higher markups.
• Expanded control. Backwards integration can also boost your influence over the standard of your products. Forward integration removes reliance on third-event distributors, allowing you to control how your products are marketed, sold, and delivered to customers. This also increases control over the customer encounter.
• Protection against disruption. By exercising more control over both forward and backward operations, a business can protect itself against disruptions in the supply chain or distributor operations. 

Disadvantages

• Strained resources. By diverting resources to ongoing backward or forward operations, throng members may have hardship completing some core business functions.
• More overhead. To receive over manufacturing or distribution operations, you’ll likely require more physical spaces like warehouses or production floors, and expanded business processes like additional employees and increased training.
• Changes in product and distribution standard. Your vertically integrated business may battle at first to make products of the same standard as third-event manufacturers or distribute products with the same level of efficiency as third-event distributors. As you assume control over these operations, recognize that the learning curve might be steep.

How a horizontal integration way works

Horizontal integration often has two main objectives: boost trade distribute and expand into recent markets. To these ends, businesses often implement horizontal integration by merging with, taking over, or acquiring competitors. You might do this by buying out a competitor in your own trade or by acquiring a similar business elsewhere, thereby accessing a recent geographic trade.

For example, let’s declare you operate an ecommerce business in Houston, Texas, that sells locally sourced meal-prep boxes. You’re interested in expanding into Austin. If you have the funds, you can horizontally integrate by acquiring a meal prep business in Austin that already has an extensive local client base, giving you access to your recent trade quicker than you could if you set up shop from scratch.

Advantages and disadvantages of horizontal integration

Horizontal integration can provide a host of benefits for your ecommerce business, but there are still a few drawbacks to keep in mind.

Advantages

• Increased trade distribute. By horizontally integrating one or more competitors, you can access recent customer bases and develop your business’s trade distribute.
• Access to recent markets. Expanding your business into recent markets can be tricky—ponder of the period and dedication it takes to develop a singular customer base. Horizontal integration gives you immediate access to consumers outside of your current trade, whether those recent customers are in different geographic areas or are dedicated buyers of a recent type of product. 
• Higher priority in the supply chain. When your business takes a greater distribute of the trade, both suppliers and distributors are incentivized to be more responsive to your business needs.
• More resources. Acquiring or merging with a competitor can cruel access to more warehousing and production space, employee expertise, ideas, back, and supply chain partners—as well as customer data from your recent trade.

Disadvantages

• More responsibility. By acquiring a competitor, you receive on more responsibilities like maintaining acquired spaces, reconciling recent and ancient inventory, and managing recent employees.
• Decreases flexibility. Expanding your business (and perhaps even achieving an economy of scale, the expense advantage of increasing production) can limit your ability to act quickly when faced with recent challenges, since you’ll have more employees, partners, and overhead.
• Personnel and structure integration challenges. Horizontal integration can be a test if recent business software, recordkeeping, and data safety don’t integrate properly with existing systems. A poorly handled integration procedure could outcome in an inefficient data flow that creates data silos, or fragmented business intelligence. Likewise, recent staff may not immediately fit within recent integrated systems, and there might be redundancies, layoffs, and decreased morale on both sides.
• Increased regulation. Excessive horizontal integration can outcome in oligopolies or monopolies that reduce trade choices and now the chance for worth gouging. This may draw scrutiny from regulatory agencies that protect consumers by enforcing antitrust laws.