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Forward Integration
When an organization's present distributors are
especially expensive, or unreliable, or incapable of meeting the company's
distribution needs
When the availability of quality distributors is so
limited as to offer a competitive advantage to those companies that integrate
forward
When an organization competes in an industry that is
growing and is expected to continue to grow markedly; this is a factor because
forward integration reduces an organization's ability to diversify if its
basic industry falters
When an organization has both the capital and human
resources needed to manage the new business of distributing its own products
When the advantages of stable production are particularly
high; this is a consideration because an organization can increase the
predictability of the demand for its output through forward integration
When present distributors or retailers have high profit
margins; this situation suggests that a company could profitably distribute
its own products and price them more competitively by integrating forward
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Backward Integration
When an organization's present suppliers are especially
expensive, or unreliable, or incapable of meeting the company's needs for
parts, components, assemblies, or raw materials
When the number of suppliers is few and the number of
competitors is many
When an organization competes in an industry that is
growing rapidly; this is a factor because integrative-type strategies
(forward, backward, and horizontal) reduce an organization's ability to
diversify in a declining industry
When an organization has both the capital and human
resources needed to manage the new business of supplying its own raw materials
When the advantages of stable prices are particularly
important; this is a factor because an organization can stabilize the cost of
its raw materials and the associated price of its product through backward
integration
When present supplies have high profit margins, which
suggests that the business of supplying products or services in the given
industry is a worthwhile venture.
When an organization needs to acquire a needed resource
quickly
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Horizontal Integration
When an organization can gain monopolistic
characteristics in a particular area or region without being challenged by the
federal government for “tending substantially” to reduce competition
When an organization competes in a growing industry
When increased economies of scale provide major
competitive advantages
When an organization has both the capital and human
talent needed to successfully manage an expanded organization
When competitors are faltering due to a lack of
managerial expertise or a need for particular resources that your organization
possesses; note that horizontal integration would not be appropriate if
competitors are doing poorly because overall industry sales are declining
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Market Penetration
When current markets are not saturated with your
particular product or service
When the usage rate of present customers could be
significantly increased
When the market shares of major competitors have been
declining while total industry sales have been increasing
When the correlation between dollar sales and dollar
marketing expenditures has historically been high
When increased economies of scale provide major
competitive advantages
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Market Development
When new channels of distribution are available that are
reliable, inexpensive, and of good quality
When an organization is very successful at what it does
When new untapped or unsaturated markets exist
When an organization has the needed capital and human
resources to manage expanded operations
When an organization has excess production capacity
When an organization's basic industry is rapidly becoming
global in scope
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Product Development
When an organization has successful products that are in
the maturity stage of the product life cycle; the idea here is to attract
satisfied customers to try new (improved) products as a result of their
positive experience with the organization's present products or services
When an organization competes in an industry that is
characterized by rapid technological developments
When major competitors offer better quality products at
comparable prices
When an organization competes in a high-growth industry.
When an organization has especially strong research and
development capabilities
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Concentric Diversification
When an organization competes in a no-growth or a
slow-growth industry
When adding new, but related, products would
significantly enhance the sales of current products
When new, but related, products could be offered at
highly competitive prices
When new, but related, products have seasonal sales
levels that counterbalance an organization's existing peaks and valleys
When an organization's products are currently in the
decline stage of the product life cycle
When an organization has a strong management team
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Conglomerate Diversification
When an organization's basic industry is experiencing
declining annual sales and profits
When an organization has the capital and managerial
talent needed to compete successfully in a new industry
When the organization has the opportunity to purchase an
unrelated business that is an attractive investment opportunity
When there exists financial synergy between the acquired
and acquiring company; note that a key difference between concentric and
conglomerate diversification is that the former should be based on some
commonality in markets, products, or technology, whereas the latter should be
based more on profit considerations
When existing markets for an organization's present
products are saturated
When antitrust action could be charged against an
organization that has historically concentrated on a single industry
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Horizontal Diversification
When revenues derived from an organization's current
products or services would significantly increase by adding the new, unrelated
products
When an organization competes in a highly competitive
and/or a no-growth industry, as indicated by low industry profit margins and
returns
When an organization's present channels of distribution
can be used to market the new products to current customers
When the new products have countercyclical sales patterns
compared to an organization's present products
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Joint Venture
When a privately owned organization is forming a joint
venture with a publicly owned organization; there are some advantages of being
privately held, such as close ownership; there are some advantages of being
publicly held, such as access to stock issuances as a source of capital.
Sometimes, the unique advantages of being privately and publicly held can be
synergistically combined in a joint venture
When a domestic organization is forming a joint venture
with a foreign company; joint venture can provide a domestic company with the
opportunity for obtaining local management in a foreign company, thereby
reducing risks such as expropriation and harassment by host country officials
When the distinctive competencies of two or more
companies complement each other especially well
When some project is potentially very profitable, but
requires overwhelming resources and risks; the Alaskan pipeline is an example
When two or more smaller companies have trouble competing
with a large company
When there exists a need to introduce a new technology
quickly
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