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S. 4 EconomicsS. 4 Economics
Integration
Objectives of this Lesson
explain the meaning of the four types of integration.
distinguish between the different types of integration.
At the end of the lesson, you should be able to:
What is Integration?
Integration is the combination of two or more firms to form a bigger firm.
Types of Integration
DefinitionHorizontal integration refers to the combination of firms at the same stage of production or producing the same product.
1. Horizontal Integration
Types of Integration
ExampleDao Heng Bank combined with Overseas Trust Bank in 1992.
1. Horizontal Integration
Types of Integration
DefinitionVertical integration refers to the combination of firms engaged in different stages of production of the same product.
2. Vertical Integration
Types of Integration
2. Vertical IntegrationVertical Integration can be classified into: vertical backward integration
and vertical forward integration
Types of Integration
2. Vertical Integrationa. Vertical backward integration
A firm combines with another firm which engaged in a preceding stage of production.
Types of Integration
2. Vertical Integrationb. Vertical forward integration
A firm combines with another firm which engaged in a later stage of production.
Types of Integration2. Vertical Integration (example)
o o
Forward integration
Backward integration
Weaving Weaving
Garment making Garment making
Boutique Boutique
Horizontal
Horizontal
Horizontal
Integration
Integration
Integration
Backward integration:
1. A boutique combines with a garment factory.
2. A garment factory combines with a weaving factory.
Types of Integration
2. Vertical Integration
Forward integration:
1. A spinning factory combines with a weaving factory.
2. A garment factory combines with a boutique.
Types of Integration
2. Vertical Integration
Types of Integration
3. Lateral Integration
DefinitionLateral integration refers to the combination of firms producing related but not competitive products.
Types of Integration
3. Lateral Integration
The Hong Kong Telephone Co., Ltd. combined with the cable and wireless (HK) Co., Ltd. and formed the Hong Kong Telecommunications Ltd. in 1988.
1.Examples
Types of Integration
3. Lateral Integration
Café de Coral took over Spaghetti House and Ah Yee Leng Tong in 1990.
2.Examples
Types of Integration4. Conglomerate Integration
DefinitionConglomerate integration refers to the combination of firms producing unrelated goods or services.
Types of Integration4. Conglomerate Integration
In 1972, the Hong Kong Land Ltd. took over the Dairy Farm Co., Ltd. and developed the estate, Chi Fu Fa Yuen in Pokfulum area of Hong Kong Island.
Example
Summary of the Four Types of IntegrationTypes Types of integration
• Combinations of firms at the same stage of production or producing same product.
Horizontal integration
b. Forward integration
• Combining with firms in the preceding stage of production.
Vertical integration
a. Backward integration
• Combining with firms in a later stage of production.
Summary of the Four Types of Integration
Types Types of integration
• Combination of firms producing related but not competitive products.
Lateral integration
• Combination of firms producing unrelated goods or services.
Conglomerate integration
Excercises
Steel Plant
Car Manufacturer
Garment Manufacturer
Car Distributor
Truck Manufacturer
Car Manufacturer Car Manufacturer
Backward Vertical Integration
Conglomerate Integration
Horizontal Integration
Forward Vertical Integration
Lateral Integration
Horizontal Integration
Vertical Backward Integration
Lateral Integration
Lateral Integration Vertical Forward Integration
Conglomerate Integration
Horizontal Integration
