Horizontal And Vertical Integration Made EASY! Advantages, disadvantages and examples.

[Music] horizontal and vertical integration are important concepts in all businesses including the travel and tourism industry an important management strategy horizontal and vertical integration allows companies to be more competitive in the marketplace but how does this actually work what does this mean to you and me and everyone else well this is exactly what i'm going to teach you in this video if you are new to this channel my name is dr haley stanton and i teach you all things travel and tourism so let's begin by answering the question what is horizontal integration well horizontal integration

is essentially a competitive strategy a business strategy that is used by companies it refers to the acquisition of business activities that are on the same level of the chain of distribution in similar or different industries so to put it simply horizontal integration is when one business merges with another business that is on the same level of the supply chain so for example we could have tour operators perhaps there is a ski tour operator who decides to merge with a summer sun tour operator they're both tour operators they're on the same level of the supply chain

so this is an example of horizontal horizontal integration so why does horizontal integration occur well there are lots of reasons really that organizations within the travel and tourism industry might decide to integrate on a horizontal basis this could be because the industry is growing it could be to allow for better value for money to be achieved it could be because the competitors lack expertise and it could be to be able to form a bigger organization and have more market power what are the advantages of horizontal integration horizontal integration can allow companies to achieve economies of

scale i.e their business gets bigger and more powerful they can produce things on a larger scale which means they can often do it at a reduced cost and then pass on those savings to customers or make more money themselves it can also allow a company to capture new markets that they may not have been dabbling in before and the company potentially will have a bigger market share which means less competition and hopefully more business for them horizontal integration can also allow companies to penetrate new markets in new areas perhaps in new geographical areas that they

weren't in before so for example if a tour operator that's based in france merges with one that is based in spain they've now got a bigger market across two countries instead of just one so what are the disadvantages of horizontal integration when two companies merge or maybe more companies than two merged together it can cause problems when it comes to staffing and organizational structures so this is something that will need to be worked out and developed there can also be legal implications especially when companies are merging across different countries because different countries have different laws

so this needs to be figured out too an example of horizontal integration in practice is travelopia travelopia is the world's largest collection of specialist travel brands this means that the organization can offer a variety of products which are at the same level in the chain of distribution so whilst for example oz travel and american holidays might be totally different companies they are both at the same level they're both tour operators under the travelopia umbrella another great example of horizontal integration is the virgin group the virgin group have owned many different companies throughout the years and

some have been more successful than others a good example of horizontal integration within virgin is their airlines which are based in different parts of the world virgin atlantic is based in the uk virgin australia is based in australia and virgin america which actually ceased to continue after 2018 was based in the usa all of these companies were or are at the same level of the distribution chain but they were or are different companies okay so now we understand horizontal integration but what is vertical integration well vertical integration is essentially the opposite of horizontal integration vertical

integration is a competitive strategy but this is when a company takes over one or more than one other companies at different levels within the supply chain so for example lots of companies want to have control of all elements of supply so they might want to take over the manufacturing side right through to sales and aftercare for example so what are the advantages of vertical integration well by maintaining control of the whole supply chain companies have more control and they can regulate these things much better for example 2e holidays puts together their holidays via their tour

operations they then sell them via their own travel agents then they put tourists on aircraft that are owned by tui and tourists are greeted in their destination by tui representatives this demonstrates a smooth and consistent process throughout where all aspects are managed by tui vertical integration also allows for more scope for the highs and the lows of businesses and enables the organization to diversify their income this means if one part of the business isn't doing so well perhaps another part of the business can compensate for that likewise if one area of the business is doing

really well that money can be reinvested into helping other areas of the business that might not be doing quite so well vertical integration can also help to increase the barriers for new entries into the market which means that there is less competition for said company but what are the disadvantages of vertical integration well less competition typically means that organizations and businesses don't have to try so hard so that can cause standards to drop the organization may also have less flexibility because they have to maintain a level of production in order to continue their operations it

can also be really hard for an organization to be good at everything i'm not good at everything you're probably not good at everything who is we're all human after all so this can cause problems when they're maybe not so great at one element of the business an example of this could be that somebody is fantastic at making sandwiches they make the most delicious sandwiches there are but they're not very good at customer service and actually selling those a great example of vertical integration is tui tui is one of the biggest travel companies in the world

and since the collapse of thomas cook tui has a monopoly of tour operations within the united kingdom and other parts of the world within the umbrella organization tui owns many different companies some are at the same level which is horizontal integration and some are at different levels which is vertical integration their companies include tour operations travel agents airlines in-destination services and others another great example of vertical integration is disney disney is another organization that has a history of both horizontal and vertical integration they have their theme parks they have their shops they have their movies

they have their tv channel they have businesses in all different areas so in many regards travel and tourism businesses aren't so different from businesses in other areas horizontal and vertical integration occurs in many areas of business not just travel and tourism but nonetheless it is an important thing for businesses and whether you are running a business or whether you're a student it's quite important to understand how this works and why so if you have found this video helpful do me a huge favor and give me a thumbs up and make sure you subscribe to my

channel so that you receive notifications when i publish more videos and i'll teach you more about travel and tourism [Music] you