This can be done by an organization integrating with its suppliers either through acquisitions or mergers of the supplier(s) (upstream) or purchasing various distribution channels (downstream) • Downstream Advantages - Quality standards can be ensured till the deliverance of goods or services. • Upstream Advantages - Reduces inventory costs (concepts such as Just-in-Time inventory can be applied), and the quality and standard of raw materials can be monitored and maintained. • Overall vertical integration can result in more efficient business operations reduced costs and higher profits. A conglomerate can be termed as a multi-industry organization whose sub-divisions or companies usually belong to different sectors or entirely different industries.
1. Advantages - Such integration can provide stability in sales and revenue and greater financial leverage and ease of access to capital for expansion. Also, different businesses can complement each other and conglomerate mergers can provide immediate production facilities, skilled management, and pre-established vendors and distribution channels. 2. Disadvantages – Conglomerates though very popular in the post world war era are becoming less common. Conglomerates are similar to the concept of Jack-of-all-trades which by current management practices is not considered a good practice.
The world today is moving towards specialization. Letting everybody do what they can do best and focus on areas of expertise. This is not to say that conglomerates do not exist today. The basic purpose for which an organization integrates is to benefit from increased value. Essentially the benefit of increased organizational value due to integration should outweigh the sum of values for individual entities (with which integration is done). This is the basic concept of synergy. There are six basic synergies: • Greater Revenues• Costs Decrease – The concept of economies of scale (horizontal integration).
Also, the overhead may be spread over more units. • Quality Assurance - Easier to maintain a certain level of quality (vertical integration).
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