Customer Inserts His/her Name
Globalization has provided businesses with opportunities that would not have been possible a few decades ago, especially in terms of the technology and resources available today. The ease with which international markets and their factors of production can be tapped has improved overall efficiency within companies and this aim to be as effective as possible is the prime reason why firms would think of forward integration.
Forward integration is when a manufacturer would acquire the channels of distributing its product in an attempt to achieve economies of scale and gain a greater share of the market (Barney, Hesterly, 2012). An example of this would be a farmer selling his crop directly to consumers in the market rather than selling it to a distributor. Many of the giants in the world such as PnG and Unilevers have hired distributors to do the job of supplying their product into the market, so why would a manufacturer think of selling it himself when specialized distributors can do the job?
Simply put, if a firm feels that there is untapped potential in the market which can be better catered to by opening a retail shop then it could be a feasible venture. Also, forward integration could improve the overall efficiency of the company. When working with distributors it is obvious that they will cut a share of the profits for doing the work and that is other than all the time and effort expended in dealing with them so that they communicate the product the way the company wants. Opening up the firm’s own retail store can do away with these hassles and ensure that customers are communicated the right value proposition and no time and effort is wasted. The wastage refers to distributors stocking goods of other companies and selling them side by side as well. Expanding on this point, distributors could have agreements with other companies too and they might not be putting in all their effort in selling your product. This means that there is potential and to cater to that untapped market the company could venture into selling itself and increase its revenue streams (David, 2009). This can be a particularly good strategy to follow when thinking of expanding into international markets.
David, F. (2009). Strategic Management: Concepts. Prentice Hall.
Barney, J., and Hesterly, W. (2012). Strategic management and competitive advantage. Prentice Hall.
Rothaermel, F. (2012). Strategic management. The McGraw Hill.