Business Strategies: Integration, Mergers, Acquisitions & More

Vertical Integration

The process in which several steps in the production and/or distribution of a product or service are controlled by a single company or entity, in order to increase that company's or entity's power in the marketplace.

Horizontal Integration

Much more common and simpler than vertical integration, Horizontal integration (also known as lateral integration) simply means a strategy to increase your market share by taking over a similar company. This take over / merger / buyout can be done in the same geography or probably in other countries to increase your reach.

Merger

An agreement by shareholders and managers of two businesses to bring both firms together under a common board of directors with shareholders in both businesses owning shares in the newly merged business. The combining of two or more companies, generally by offering the stockholders of one company securities in the acquiring company in exchange for the surrender of their stock.

Acquisition - Takeover

When a company buys over 50% of the shares of another company and becomes the controlling owner.

Joint Venture

A contractual agreement joining together two or more parties for the purpose of executing a particular business undertaking. All parties agree to share in the profits and losses of the enterprise. This task can be a new project or any other business activity. In a joint venture (JV), each of the participants is responsible for profits, losses and costs associated with it. However, the venture is its own entity, separate and apart from the participants' other business interests.

Strategic Alliances

Businesses use strategic alliances to:

• Achieve advantages of scale, scope, and speed
• Increase market penetration
• Enhance competitiveness in domestic and/or global markets
• Enhance product development
• Develop new business opportunities through new products and services
• Expand market development
• Increase exports
• Diversify
• Create new businesses
• Reduce costs

Outsourcing

Outsourcing is contracting with another company or person to do a particular function. Almost every organization outsources in some way.

Franchising

Franchising is a business model in which many different owners share a single brand name. A parent company allows entrepreneurs to use the company's strategies and trademarks; in exchange, the franchisee pays an initial fee and royalties based on revenues. The parent company also provides the franchisee with support, including advertising and training, as part of the franchising agreement. Franchising is a faster, cheaper form of expansion than adding company-owned stores, because it costs the parent company much less when new stores are owned and operated by a third party.