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Integrative Growth Strategy

It is the strategy of growth by combination. Two or more firms may decide to combine or merge to form a bigger enterprise. When one form takes over another firm, it is called meager or absorption. but if a new firm is created by combining (or merging) two existing firms, it is called amalgamation. The combined firm will have the benefit of large resources and economies of large scale production and distribution.

The alternatives of integrative growth strategy are disused below:

(a)    Horizontal Integration or Merger. It takes place by merging of units engaged in manufacturing similar products or rendering similar services. That means competing firms are brought together under single ownership and management. For instance, if two or more sugar mills are combined under the same ownership, it will be a case of horizontal integration. The benefits of this type of integration are economies of large scale operations and evasion of unnecessary competition.

(b)    Backward Integration of Merger.
A company engaged in production of a product may integrate backward upto the sources of raw materials. This would ensure continuous supply of raw materials for the production processes of the company. The acquisition of a textile mill by a ready-made garments manufacture is a case of backward integration. it leads to vertical growth.

(c)    Forward Integration or Merger. A company may decided to grow through forward integration with the distribution channels of its products. it may acquire certain distribution channels to have a greater control over the distribution of its products. The manufacturer of readymade garments may take over certain retail shops to ensure ready market for his products. It also leads to vertical growth.

(d)    Conglomerative Merger. A company is said to follow the conglomerative growth strategy if it acquires another firm which is engaged is altogether different line fo business and is using different trade channels. In other words, it seeks tis future growth through entering new lines f business unrelated to its present market chancels or technology. For instance, a textile company may take over engaged in chemicals, fertilizer, sugar, electrical equipments etc.

Advantages of Integrative Or External Growth. The merits of integrative growth strategy are as under:

(i)    It facilitates acquisition of existing manufacturing units. There are no problems of promotion of starting a new enterprise.

(ii)    Business growth is quick because running units are acquired.

(iii)    The business takes over sources fo raw materials. Some son of self-sufficiency is achieved as far as raw materials are concerned.

(iv)    Acquisition of established market channels facilitate the marketability of the products.

Limitations of Integrative or External Growth. The limitation of integrative growth strategy are as under:

(i)    Integrative growth strategy can be implemented only if huge capital is available with the business firm.

(ii)    Competent and professional executives are needed to handle the affairs of new units. The exsting staff of the acquired units may not be able to adjust with the new management.

(iii)    There is a need of overall revision of the organization structure to meet new challenges. If its is not done, there will be problem of coordination in the working of acquired units.

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