2. S. 4 Economics Integration

3. Objectives of this Lesson l explain the meaning of the four types of integration. l distinguish between the different types of integration. At the end of the lesson, you should be able to:

4. What is Integration? Integration is the combination of two or more firms to form a bigger firm.

5. Types of Integration Definition Horizontal integration refers to the combination of firms at the same stage of production or producing the same product. 1. Horizontal Integration

6. Types of Integration Example Dao Heng Bank combined with Overseas Trust Bank in 1992. 1. Horizontal Integration

7. Types of Integration Definition Vertical integration refers to the combination of firms engaged in different stages of production of the same product. 2. Vertical Integration

8. Types of Integration 2. Vertical Integration Vertical Integration can be classified into: vertical backward integration and vertical forward integration

9. Types of Integration 2. Vertical Integration a. Vertical backward integration A firm combines with another firm which engaged in a preceding stage of production.

10. Types of Integration 2. Vertical Integration b. Vertical forward integration A firm combines with another firm which engaged in a later stage of production.

11. Types of Integration 2. Vertical Integration (example) Forward integration Backward integration Weaving Garment making Boutique Horizontal Integration

12. 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

13. 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

14. Types of Integration 3. Lateral Integration Definition Lateral integration refers to the combination of firms producing related but not competitive products.

15. 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

16. Types of Integration 3. Lateral Integration Café de Coral took over Spaghetti House and Ah Yee Leng Tong in 1990. 2. Examples

17. Types of Integration 4. Conglomerate Integration Definition Conglomerate integration refers to the combination of firms producing unrelated goods or services.

18. Types of Integration 4. 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

19. Summary of the Four Types of Integration Types 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.

20. Summary of the Four Types of Integration TypesTypes of integration Combination of firms producing related but not competitive products. Lateral integration Combination of firms producing unrelated goods or services. Conglomerate integration

21. Excercises

22. Steel Plant Car Manufacturer Garment Manufacturer Car Distributor Truck Manufacturer Car Manufacturer Backward Vertical Integration Conglomerate Integration Horizontal Integration Forward Vertical Integration Lateral Integration Horizontal Integration

23. Vertical Backward Integration Lateral Integration Vertical Forward Integration Conglomerate Integration Horizontal Integration