The Chain of Distribution is a chart which explains where agents involved with the Travel and Tourism Industry are linked together through the Chain of Distribution. If a tour operator buys another tour operator at the same level in the chain of distribution, this is know as horizontal integration. Most of the major tour operators in the UK are vertically and horizontally integrated.
Horizontal, Vertical and Conglomerate Integration Article shared by: Three main types of integration in external growth of firm size are as follows: Horizontal integration is the merger of two firms at the same stage of production, producing the same product. For example, the merger of two car producers or two TV companies.
There are two key motives behind horizontal integration.
One is to take greater advantage of economies of scale. The new firm will be larger and hence may be able to produce at lower average cost. The other is to increase the market share.
By merging with another firm producing the same product, a direct competitor is eliminated. Another possible benefit that may arise from horizontal integration is rationalization. If the two firms had not been using all their resources fully, merging could enable them to sell off the redundant resources, for instance, one office block.
The new firm may also be able to save on managerial staff. There is a risk, however, with horizontal integration that the merged firm may experience diseconomies of scale. Also, a large firm can be difficult to control. It may also be difficult to integrate the two firms if they initially had different management structures or are located some distance apart.
Vertical integration occurs when a firm merges with another firm involved with the production of same product but at a different stage of production. It can take the form of vertical integration backwards or vertical integration forwards.
Vertical integration backwards is when a firm merges with a firm that is the source of its supply of raw materials, components or the products it sells. For example, a supermarket chain may take over a bakery and a tyre manufacturer merger with a producer of rubber. The main motive behind such integration is to ensure an adequate supply of good quality raw materials at a reasonable price.
Another aim might be to restrict the access of the rival firms to the supplies. For instance, an oil company may buy a chain of petrol stations and an airline may merge with a tour operator. The two key motives behind this form of vertical integration are to ensure that there are sufficient outlets and the products are stored and displayed well in high quality outlets.
A firm may also hope that such a merger may help in the development and marketing of new products. As with horizontal integration, problems may be encountered with vertical integration also. Again there may be management problems. The managers of the merged firms may not be familiar with running, for instance, a market outlet.
The two firms may also have been of different sizes and this may require some adjustment or the buying in of some supplies from other firms or the selling of supplies to other firms. A conglomerate merger involves the merger of two firms making different products. For example, an electricity company may merge with a travel company and an insurance company may merge with a chocolate producer.
Coordinating a firm producing a range of products can, however, prove to be very challenging.
In fact, after a number of years, some firms demerge, i.Tour operators arrange the transport, accommodation and leisure activities which make up the holiday packages.
Tour Operators have a massive impact on the tourism industry as there would be no holidays if there wasn’t any tour operator as they're the ones that make the holidays and give them to the travel agents which is where tourists buy their holidays from. Conclusion Vertical integration in UK tour operating is a phenomenon of our time and as long as companies are determined to dominate and control the market it is likely to continue.
Benefits of economies of scale, and total product control through supply and distribution are obvious advantages. Understand the advantages and disadvantages of a horizontal integration.
Learn when a company would want to integrate horizontally. Discover how vertical integration allows firms to take more. Unit 13 - Tour Operations Ancillary service providers Horizontal integration is when a company owns or has control over a number of companies at the same level in the distribution chain or the same industry sector (vertical or horizontal) helps a Tour Operator.
In microeconomics and management, vertical integration is an arrangement in which the supply chain of a company is owned by that company.
Usually each member of the supply chain produces a different product or (market-specific) service, and the products combine to satisfy a common need. It is contrasted with horizontal integration, wherein a .
Vertical integration forward is when a firm merges with, or takes over, a market outlet. For instance, an oil company may buy a chain of petrol stations and an airline may merge with a tour operator.