Increasing integration is the method used by a company to gain more control over the distribution of its products and services. For example, the creation of Disney + by the house of the mouse, which allows you to distribute your content directly to customers, without intermediaries.
In a way, it is like a derivative of vertical integration. In the latter case, a company takes over new phases of the production process by buying other companies or by expanding its activity to cover that new phase. When applied to the early steps of the production process, it is called bottom-up integration. When it comes to the last few steps, it’s top down integration.
A company may use increasing integration for various steps in the production process, such as taking control of both the sales and distribution of its products. Taking control of more stages increases both risk and reward: the company takes more responsibility for production costs but also reduces the number of players who share in the benefits of a successful production.
Once we have clarified what growing integration consists of, let’s see what the usual phases of a production process are, as they will also help us to better understand the advantages and risks of this type of integration and we will be able to assess whether it is worthwhile for our business.
Raw Materials – During this phase, a company creates the raw materials needed to create a product.
Manufacturing : uses raw materials to make the products that will be marketed.
Distribution – A distribution company transports the finished product from the factory to the store.
Sale – Customers buy the final product in a store.
After Sales Service – Offering additional services such as installation, maintenance, and warranties can go a long way to further monetize a product.
The usual thing in the case of small and medium-sized companies is that each one is in charge of a part of that process. However, an ambitious company in good economic health can consider increasing integration by undertaking a second phase of the process. For example, a store may start offering after-sales services or a supplier of raw materials may decide to also handle the transformation of those materials. In the short term the expenses increase and the risk is greater, but in the long term it is usually a beneficial decision.
