Economics Of Organization And Strategy. Horizontal integration

Trident University
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BUS530 Managerial Economics
MODULE 4 SLP
ECONOMICS OF ORGANIZATION AND STRATEGY
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Horizontal integration
Horizontal integration relates to the combination of two or more firms or business that produces the same product resulting in a new and larger organization. I would acquire the fast-food restaurants operating locally, but with no national presence to grow the business. Nationally known fast food restaurants such as McDonald’s and Wendy’s are recognizable brands and command a big market share. These restaurants are better placed to acquired others and no being acquired, and horizontal integration for my business would help me provide a wide variety of products necessary to meet the customers’ needs.
As horizontal integration involves mergers and consolidations, the strategy would bring the business closer to the customers, being the business itself, as a whole would provide food products to the customers; without other restaurants to carry out this. However, horizontal integration would be pursued after creating a unique brand and focusing on differentiation, and this will increase competitiveness (Parnell, 2014). The horizontal integration strategy seeks to control or acquire a business by another of the same market, seeks to improve efficiency and increase market power. The strategy is useful to sell products in the new market and this means growth for the business.
The horizontal integration strategy is most effective when the business gains a substantial market share since there will be sufficient capacity and human talent to cope with changes in the business. However, there are low barriers to entry and substitute products in the fast foods restaurants and this makes the industry competitive. There are opportunities to expand business operations, but there is a need to consider changing tastes and preferences between consumers and the influence of big brands on the fast-food sector.
Vertical integration
Vertical integration will help to ensure control of the distribution channel, without which the business could be less competitive. This strategy could increase the total profitability of the restaurant. Backwards vertical integration is beneficial when there is a need to ensure a stable supply of materials and ensure a constant quality of the final product since there are other related businesses supplying the inputs or raw materials. Forward vertical integration involves a business eliminating of intermediaries within the distribution channel including selling directly to customers, but for the fast foods restaurants there is sale directly to the customers so this option is not as viable.
Backward integration is the more viable option for the fast food restaurant industry when there would be acquisition of a key supp...