Types of Integration

When two businesses are brought together through a merger or takeover, it is possible to define the nature and type of integration based on the activities of each business and where they operate in the supply chain of an industry.

The types of integration are illustrated in the diagram below:

The main types of integration are:

Backward vertical integration

This involves acquiring a business operating earlier in the supply chain – e.g. a retailer buys a wholesaler, a brewer buys a hop farm

Conglomerate integration

This involves the combination of firms that are involved in unrelated business activities

Forward vertical integration

This involves acquiring a business further up in the supply chain – e.g. a vehicle manufacturer buys a car parts distributor

Horizontal integration

Here, businesses in the same industry and which operate at the same stage of the production process are combined.