Value System Sourcing Processing Sales Etc. Raw Material Manufacture Design Manufacture Etc. Component Design Marketing Manufacture Etc Assembly Marketing Inventory Sales Etc. Distribution Parts Inventory Training Servicing Etc. Maintenance Purchasing Inventory Sales Etc. Used Resale Autobytel.com New and used car purchasing Financing comparison and purchase Real-time insurance quotes Wholesale anchors Service tracking Collect Research Request Dealer Quote Finance Make Sale Source Warranty, Insurance Quotes Track Vehicle Service Publish Classified Ads

Vertical scope Vertical scope of the firm is an important consideration in corporate strategy to sustain advantage over competition Vertical scope is the extent of firm’s vertical integration backwards to its supply chains and forward to it distribution chain within its own value system

Backward Integration Manufacturing Firm The point from your firm’s value chain backward to your component supplier’s value chain , backward to your raw material supplier’s value chain within the same value system; Also known as Upstream Suppliers

Forwards Integration Manufacturing Firm The point from your firm’s value chain forward to your distributor's value chain , forward to your retail value chain to sell to the consumer within the same value system Also known as Downstream Distributors

Background to VI Mergers and Acquisitions The phrase mergers and acquisitions (abbreviated M&A) refers to the aspect of corporate strategy, corporate finance and management dealing with the buying, selling and combining of different companies that can aid, finance, or help a growing company in a given industry grow rapidly without having to create another business entity.

Mergers A merger is a tool used by companies for the purpose of expanding their operations often aiming at an increase of their long term profitability. Usually mergers occur in a consensual (occurring by mutual consent) setting where executives from the target company help those from the purchaser in a due diligence process to ensure that the deal is beneficial to both parties. Acquisitions can also happen through a hostile takeover by purchasing the majority of outstanding shares of a company in the open market against the wishes of the target's board. One form of protection against a hostile takeover is the shareholder rights plan, otherwise known as the "poison pill".

Mergers In business or economics a merger is a combination of two or more companies into one larger company. Such actions are commonly voluntary and involve stock swap or cash payment to the target. Stock swap is often used as it allows the shareholders of the two companies to share the risk involved in the deal. A merger can resemble a takeover but result in a new company name (often combining the names of the original companies) and in new branding; in some cases, terming the combination a "merger" rather than an acquisition is done purely for political or marketing reasons.

Horizontal Mergers Communications Industry Horizontal mergers take place where the merging companies produce similar product in the same or similar industry and operate in different value systems. MCV (Cable TV) buys Guam Cell (Phone); (buys PDN (Newspaper); buys Sorenson K57 (Radio); buys Directions (Magazine); buys Super Shopper (Ad fliers, brochures).

Hrizontal Mergers/Integration The advantages of horizontal integration can lie in reaching the customers (if you are already selling them one thing, use the opportunity to sell more) but can include economies of scale in purchasing, logistics and operations.

Vertical Merger Retail Business Vertical mergers occur when two firms, each working at different stages in the production of the same good, combine; in the same value system—firm can buy backwards or forward in the same value system

Backward & Forwards Vertical Integration Joe Tuba Distribution buys (backwards) Kurt’s Tuba Wholesale, buys Brandon's Tuba Tree Farm. Joe Tuba Distributor buys (forward) Retail Outlets Chodi’s Market, Payless Markets, Seven-Elevens, On the Run Market.

Forwards Vertical Integration Joe Tuba Distributor buys (forward) Retail Outlets Chodi’s Market, Payless Markets, Seven-Elevens, On the Run Market. Joe Tuba Distributor is essentially buying the Distributors to their business to reach his customers

Motives behind M&A These motives are considered to add shareholder value: Synergy: This refers to the fact that the combined company can often reduce duplicate departments or operations, lowering the costs of the company relative to the same revenue stream, thus increasing profit. Increased revenue/Increased Market Share: This motive assumes that the company will be absorbing a major competitor and thus increase its power (by capturing increased market share) to set prices. Cross selling: For example, a bank buying a stock broker could then sell its banking products to the stock broker's customers, while the broker can sign up the bank's customers for brokerage accounts. Or, a manufacturer can acquire and sell complementary products. Economies of Scale: For example, managerial economies such as the increased opprtunity of managerial specialisation. Another example are purchasing economies due to increased order size and associated bulk-buying discounts.

Competitive Advantage The first company to launch a new type of product should have a competitive advantage over those that start later. Before competitors get started it should have been able to: build a customer base build a strong brand develop economies of scale

Economies of scale Economies of scale A larger business is often able to do things more cheaply than a smaller one, other things being equal. Anything that helps save costs if the scale of operations increases is an economy of scale. There are many sources of economies of scale, which ones are important depend on the industry (and company) in question. Common economies of scale include: spreading administrative overheads over a bigger operation purchasing power to get better deals from suppliers lower costs in manufacturing - e.g., if a bigger factory has lower costs per unit produced better logistics leading to lower distribution costs

Economies of scale Economies of scale are often the claimed justification for mergers and acquisitions It is important to remember that economies of scale do not necessarily happen because a business is bigger. For example, combining two completely unrelated businesses is likely to lead to higher costs (by adding an extra layer of management) and worse management (by reducing focus on each business and adding bureaucracy).

Alternative to Integration Outsourcing Outsourcing is the contracting out of work, that was previously done within an organization, to an external provider. There are a number of reasons for outsourcing, the commonest are to enable a business to focus on its core business or to save costs. A firm is not buying another firm as in integration, it is just buying a service from that firm

Outsourcing While many organizations can both reduce costs and improve management by outsourcing, there are also disadvantages: There is a loss of control involved in outsourcing, as the function outsourced is no longer under direct control. Outsourcing also exposes the organization doing the outsourcing to the risk that its supplier may fail to deliver, or to deliver satisfactorily.