Horizontal And Vertical Integration Made EASY! Advantages, disadvantages and examples.

Summary

This video by Dr. Haley Stanton explains horizontal and vertical integration in the travel and tourism industry. Horizontal integration involves merging companies at the same supply chain level, like tour operators, to expand market share and reduce competition. Vertical integration occurs when a company controls multiple levels of the supply chain, like TUI handling everything from travel agents to airlines. Both strategies help companies become more competitive, but each has advantages and challenges. The video also provides examples from brands like Virgin, TUI, and Disney, making the concepts clear and relevant.

Takeaways

• 🔄 Horizontal integration refers to the merging of companies at the same level of the supply chain, such as two tour operators joining forces.
• 📈 Companies use horizontal integration to grow, capture new markets, and increase their market power, often reducing costs and increasing profits.
• 🌍 Horizontal integration allows companies to expand geographically, as seen in tour operators merging from different countries.
• ⚖️ Disadvantages of horizontal integration include potential staffing and legal issues, especially when merging across borders.
• 🛫 Travelopia and the Virgin Group are examples of horizontal integration in the travel industry, where companies under the same umbrella operate at the same level of the supply chain.
• 📊 Vertical integration involves a company taking control of various levels of the supply chain, from production to sales, like TUI managing all aspects of its holidays.
• 🔑 Vertical integration allows for better control, smoother processes, and diversification, which can balance financial risks across different business areas.
• 🚧 One disadvantage of vertical integration is that less competition can lead to complacency, and companies may struggle to excel in every part of the supply chain.
• 🎢 Disney and TUI are examples of both vertical and horizontal integration, controlling multiple levels of the supply chain in their respective industries.
• 🌐 Integration strategies, whether horizontal or vertical, are vital for businesses to remain competitive, not only in travel and tourism but across many industries.

Q & A

What is horizontal integration in business?

Horizontal integration is a competitive business strategy where a company acquires or merges with another business at the same level of the supply chain, either in similar or different industries.

Can you provide an example of horizontal integration in the travel industry?

An example of horizontal integration in the travel industry is a ski tour operator merging with a summer sun tour operator. Both companies operate at the same level of the supply chain as tour operators.

What are some reasons why horizontal integration occurs in the travel and tourism industry?

Horizontal integration may occur to allow businesses to grow, achieve better value for money, overcome competitors’ lack of expertise, or create a larger organization with more market power.

What are the advantages of horizontal integration?

The advantages include economies of scale, the ability to produce at a reduced cost, capturing new markets, gaining a larger market share, and reducing competition.

What are the disadvantages of horizontal integration?

Disadvantages include staffing and organizational challenges, legal implications due to mergers across countries with different laws, and potential integration difficulties.

What is an example of horizontal integration in practice?

An example is Travelopia, which owns a variety of specialist travel brands that operate at the same level in the supply chain, such as Oz Travel and American Holidays.

What is vertical integration in business?

Vertical integration is a strategy where a company takes control of multiple levels of the supply chain, from manufacturing to sales and aftercare, ensuring more control over the entire process.

What are the advantages of vertical integration?

Vertical integration provides more control over the supply chain, allows for better regulation, enables diversification of income, and helps increase barriers to entry for competitors.

What are the disadvantages of vertical integration?

Disadvantages include a potential drop in standards due to reduced competition, less flexibility in production, and difficulties in managing all aspects of the business.

Can you give an example of vertical integration in the travel industry?

A good example is TUI, which owns tour operations, travel agents, airlines, and in-destination services, allowing them to manage all parts of the travel experience from start to finish.