EFFECT OF FORWARD INTEGRATION ON MANUFACTURING INDUSTRY PERFORMANCE
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EFFECT OF FORWARD INTEGRATION ON MANUFACTURING INDUSTRY PERFORMANCE
Chapter one
INTRODUCTION
1.1 Background of the Study
Businesses employed integration tactics to boost market share and profit, thereby improving firm performance. Vertical integration is quite prevalent among larger organisations looking to expand their events. Vertical integration occurs when a business expands into new areas related to its business processes.
There are several tactics for each sort of integration that aim to generate revenues for the organisation. Market expansion occurs when a company attempts to grow into areas that will enhance its market share, although not necessarily in different sectors or even with the same products.
Forward integration is a vertical strategy in which corporations penetrate industries in the supply chain ahead of competitors. In other words, vertical forward integration is a method of ensuring distribution channels for products and services by establishing relationships with or controlling distribution.
Businesses save money by selling things they develop, which frees the provider from the threat or influence of a large customer. Firms typically add new products to their portfolio when they gain new expertise and combine it with their existing knowledge base, especially in highly dynamic industries.
The new information frequently builds on previous knowledge, allowing for improvements in existing items such as excellent quality and the ability to meet the expectations of consumers. As a result, this process of knowledge development and integration frequently increases the performance of linked items in the portfolio.
The combination of various knowledge stocks enhances the firm’s ability to offer a wider range of connected items. As a result, the company is able to better meet the needs of its customers than competitors’ product offers. (Aluko, Odugbesan, Osuagwu et al, 1997).
On the other hand, the manufacturing industry continues to be one of the most important engines for economic growth, with its performance as a catalyst for transforming slow-growing and low-value activities into more productive activities with higher margins and growth prospects.
However, its potential benefits are even greater in the current era of rapid technological change, liberalisation, and income gap closure with the industrialised world. (Mike, 2010).
However, vertical integration implies that a business unit’s fortunes are at least partially dependent on the ability of its in-house supplier or client (who may also be its distribution channel) to finish effectively.
Technological advancements, changes in product design involving components, strategic failures, or managerial issues might result in an in-house supplier supplying high-cost, inferior, or inappropriate products and services. There are two sorts of vertical integration strategies. Backward and forward integration. Kazmi, 2002.
Backward integration is a tactic used by businesses to build their own raw material sources. It occurs when a company expands into operations that are concerned with the inputs to its existing business. (Oyedijo Ade 2004).
Forward integration strategy, on the other hand, occurs when a company disposes of its own output by acquiring or increasing control over distributors or retailers.
An increasing number of manufacturers are pursuing forward integration by developing websites, distribution outlets, and so on to offer their products directly to consumers.
Thus, forward integration strategy is concerned with the company’s outputs, i.e., the firm moves forward in the value chain by developing and offering its own distribution outlets, transportation system, repairs, and servicing.
It is suggested that growing vertical integration has led to decreased prices for both unmerged input suppliers and vertically integrated firms (Porter, 1980). According to the literature, vertical integration or coordination will increase efficiency by lowering transaction costs associated with market exchange.
Fernando (1995). Other most commonly argued benefits of vertical integration include the reduction of risk, improves supply chain coordination, captures upstream and downstream profit margins, the ability of integrated firms to innovate and differentiate,
it enhances steady near-capacity production operations through the creation of one’s own dependable channels for pushing product to end-users, increased efficiency in the exchange of information and organisational structures, and imp
As a result, the primary goal of this research is to objectively investigate the impact of vertical integration on the performance of integrated organisations. More particularly, it examines the influence of Cadbury Nigeria Plc’s forward integration strategy on its performance.
1.2 Statement of Problem
Manufacturing industrial sectors are not immune to problems and difficulties that affect all industries. This research is being conducted with the goal of providing solutions to challenges faced by manufacturing industries that have failed to implement corporate level strategies using vertical integration approaches in order to acquire a competitive advantage over rivals.
The problems range from inadequacy of vertical integration planning, lack of gaining control over distributors, unlimited availability of qualified and competent distributors,
weak form of machinery that is put in place to implement forward integration strategy, lack of enough capital and human resources needed to manage the business as a result of high cost of market transactions and administration activities within an organisation, and lack of stable production desire to
1.3 GOALS OF THE STUDY
The aims of this study are:
i. Assess the impact of a forward integration strategy on manufacturing industry performance.
ii. Determine how the forward integration strategy affects the achievement of organisational goals.
iii. Determine the extent to which the organization’s retail outlets have increased market share.
iv. To assess the impact of an organization’s service department on production.
v. Determine the impact of decreasing selling prices to end users on the profitability of the manufacturing business.
1.4 RESEARCH QUESTIONS.
The research questions below will lead the investigation.
i. Do the organization’s retail outlets enhance market share?
ii. To what extent has an organization’s servicing department increased productivity?
iii. Does implementing a forward integration plan assist the organisation achieve its goals?
iv. Does a forward integration plan improve the profitability of the manufacturing industry?
v. Does organisational control over sales have any effect on organisational profitability?
1.5 Research Hypotheses
1. Ho: There is no significant correlation between an organization’s retail outlets and market share.
Hi: There is a considerable correlation between an organization’s retail outlet and market share.
2. Ho: There is no relationship between an organization’s service department and its productivity.
Hi: There is a relationship between an organization’s servicing department and its production.
3. Ho: There is no relationship between forward integration plan and achievement of organisational goals.
Hi: There is a link between forward integration strategy and the achievement of organisational goals.
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