strategy management series video number 64 strategy formulation step six strategy selection generic integration strategies welcome back to the ready MBA series on strategy Management in our previous videos we introduced strategy selection the sixth step in the strategy formulation process this step consists of identifying and selecting courses of action that a company may choose to achieve its strategic intent mission vision and objectives in our last few episodes we have been talking about generic strategies which are fundamental approaches that businesses can adopt to gain a competitive advantage and position themselves effectively within their industry or Market these generic strategies help businesses make strategic decisions about how they will compete in the market allocate resources and differentiate themselves from competitors in this video we'll explore another set of generic strategies known as integration strategy we'll cover vertical forward and backward horizontal and conglomerate integration strategies understand when and why they use them and discuss real life examples so let's get started first let's grasp the concept of integration strategies these strategies focus on how a company can combine or align its internal operations and functions to create a more efficient and competitive business model integration strategies involve the coordination and consolidation of various aspects of a company's operations including its supply chain production processes distribution and even corporate culture there are three types vertical integration which can be either forward or backward horizontal integration and conglomerate integration so what's the difference between vertical horizontal and conglomerate integration vertical integration entails the the acquisition or integration of companies that are at different stages of the supply or distribution [Music] chain it can be forward moving toward the customer or backward moving toward suppliers horizontal integration on the other hand involves the consolidation of companies that operate in the same industry or at the same stage of the supply chain the goal is to achieve economies of scale increase market share and reduce competition a common example is a merger or acquisition of competitors in the same industry conglomerate integration is when a company diversifies its business by entering completely unrelated [Music] Industries the aim is to reduce Risk by not relying on a single industry or Market conglomerate integration can be achieved through mergers Acquisitions or divers I ification into different sectors when is conglomerate integration the right strategic move it's a strategic Choice when your business aims to diversify into entirely different Industries for example if you're a technology company looking to reduce risk and explore new markets considering an investment in the food production industry could be a wise step to broaden your business scope conglomerate integration offers the benefits of potential risk reduction through diversification new revenue streams and Innovation opportunities however it presents challenges including increased complexity potential loss of focus integration difficulties and the risk of poor performance in some businesses careful evaluation is essential when considering conglomerate integration when should you use horizontal integration it's a smart choice when you want to expand your business by acquiring or merging with similar companies for instance if you're a retail company acquiring another retail chain can help you grow your Market presence horizontal integration which involves merging or acquiring competitors in the same industry has several advantages including increased Market power economies of scale synergies and reduced competition however it also presents challenges such as antitrust concerns integration complexities potential loss of innovation and high acquisition costs now let's dive into vertical integration when is it the right strategy well it's ideal when you want to control and improve your supply or distribution chains if you're in the smartphone manufacturing business and decide to open your own stores to sell directly to customers that's forward integration if you're a bakery and decide to acquire a wheat farm to ensure a consistent supply of quality wheat that's backward integration what's the difference between forward and backward integration forward integration is about moving closer to your customers for example a car manufacturer selling directly to Consumers by opening showrooms forward integration involves selling products or Services directly to customers offering advantages like Market control increased profit margins improved customer experience and brand loyalty however it also presents challenges such as higher costs Market entry difficulties operational complexities and the potential for conflicts with existing distributors or retailers backward integration on the other hand involves moving closer to your suppliers if a chocolate company buys a cocoa bean Farm to ensure a steady Coco Supply that's backward integration backward integration involves a company taking control of its suppliers or the production of key inputs the advantages of this strategy include supply chain control cost savings quality assurance and product differentiation however there are drawbacks including High initial Investments operational challenges supplier dependence and potential Market entry barriers in established supplier dominated Industries as you can see all of the different integration strategies have pros and cons that must be carefully evaluated when being considered let's look at some real life examples Disney a media company uses forward integration by operating theme parks to engage customers directly in contrast Apple a tech giant uses backward integration by investing in the production of its own microchips to control the supply chain in the automotive industry the merger of Fiat Chrysler automobiles FCA and pujo sa group PSA in 2021 represented a horizontal integration strategy both companies were prominent players in the industry and their merger created stellantis one of the world's largest Automotive manufacturers this move allowed them to consolidate their operations reduce costs and enhance their Global Market presence one of the most iconic examples of conglomerate integration is general electric GE while originally an electrical equipment manufacturer GE has Diversified into numerous unrelated Industries over the years including Aviation health care and financial services this conglomerate approach allowed GE to spread its risk and generate revenue from a wide range of sectors limitations and attention points now let's talk about the limitations of integration strategies they can be costly and complex to implement there's always a risk of overextending your business or facing regulatory challenges when acquiring competitors it's vital to pay attention to market dynamics potential antitrust issues and the impact on existing Partnerships and customer relationships to sum it up integration strategies can be a GameChanger for your business offering opportunities to control contr your supply chain reach customers directly and grow your Market presence the key is to choose the right type of integration whether vertical or horizontal and execute it carefully we hope this video has been informative and has shed light on how businesses can make strategic decisions for their growth thanks for watching and remember to like subscribe and share this video with your fellow business enthusiasts until next time keep strategizing and stay ahead in the business world