The expansion of firms Reasons of integration Types of integration Group member: S.5B Crystal Wong...
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Transcript of The expansion of firms Reasons of integration Types of integration Group member: S.5B Crystal Wong...
The expansion of The expansion of firmsfirms
Reasons of Reasons of integrationintegration
Types of integrationGroup member:
S.5B
Crystal Wong
Sammi Sit
Suki Cheung
Teresa Sum
Reasons of integration
•Enjoy economies of scale The size of firm becomes bigger after integration, the scale of
production will , then the average cost will
• Closing down some plants to reduce loss After integration, less manpower is needed, labour costs can be save. Some inefficient plants will be closed.
Types of integration
Vertical integration at different stages of production of the same
product combine together.
Vertical backward integration
combines with the firm in its preceding stage of production.
Vertical backward integration
Example: the glasses factory combines with the plastic factory, which are the elements of producing glasses.
Glasses factory Plastic factory
Vertical forward integration
Example: the glasses factory combines with the glasses retailing shop.
Glasses factory
~combines with the firm in its later stage of production.
Types of integration
Conglomerate integration combination of firms engaging in different
lines of production.
Example: Hutchison Whampoa limited company integrates with some other business firms.
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Advantages of integration
1. To guarantee the supply of raw material (vertical backward)
2. To guarantee the market of product (vertical forward)
3. To diversify production and reduce risk (conglomerate)