A Business Encyclopedia

Expansion through Integration

Definition: The Expansion through Integration means combining one or more present operation of the business with no change in the customer groups. This combination can be done through a value chain.

The value chain comprises of interlinked activities performed by an organization right from the procurement of raw materials to the marketing of finished goods. Thus, a firm may move up or down the value chain to focus more comprehensively on the needs of the existing customers.

The expansion through integration widens the scope of the business and thus considered as the grand expansion strategy. There are two ways of integration:

expansion through integration

Vertical integration: The vertical integration is of two types: forward and backward. When an organization moves close to the ultimate customers, i.e. facilitate the sale of the finished goods is said to have made a forward integration. Example, the manufacturing firm open up its retail outlet.

Whereas, if the organization retreats to the source of raw materials, is said to have made a backward integration. Example, the shoe company manufactures its own raw material such as leather through its subsidiary firm.

Horizontal Integration: A firm is said to have made a horizontal integration when it takes over the same kind of product with similar marketing and production levels. Example, the pharmaceutical company takes over its rival pharmaceutical company.

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