The expansion of firms Reasons of integration Types of integration Group member: S.5B Crystal Wong Sammi Sit Suki Cheung Teresa Sum

Reasons of integration Enjoy economies of scale The size of firm becomes bigger after integration, the scale of production will, then the average cost will Closing down some plants to reduce loss After integration, less manpower is needed, labour costs can be save. Some inefficient plants will be closed.

Types of integration  Vertical integration at different stages of production of the same product combine together.   Vertical backward integration combines with the firm in its preceding stage of production.

Vertical backward integration Example: the glasses factory combines with the plastic factory, which are the elements of producing glasses. Glasses factory Plastic factory

Vertical forward integration Example: the glasses factory combines with the glasses retailing shop. Glasses factory ~combines with the firm in its later stage of production.

Types of integration  Conglomerate integration combination of firms engaging in different lines of production. Example: Hutchison Whampoa limited company integrates with some other business firms.

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Advantages of integration 1. To guarantee the supply of raw material (vertical backward) 2. To guarantee the market of product (vertical forward) 3. To diversify production and reduce risk (conglomerate)