An integration strategy occurs when companies at different stages of production within a supply chain combine. A typical example involves a manufacturer acquiring a supplier. This consolidation aims to streamline operations and reduce costs by internalizing transactions that were previously conducted through the open market. Integrating successive stages of an industry’s value chain is the core tenet of this type of strategic business decision.
Significant advantages of this consolidation include improved efficiency, greater control over supply, and the potential to reduce transaction costs. Historically, these integrations have been pursued to ensure a more stable and reliable flow of raw materials or components, and to protect against opportunistic behavior by suppliers or distributors. Moreover, these actions can lead to increased barriers to entry for potential competitors, solidifying the combined entity’s market position.