Hello, good day. Welcome to the second part of Fred R. David’s strategy training series. In this part, we want to examine together the forward or upward integrated vertical strategy.
Forward integration, in which the organization tries to increase its control over sales, distribution and sales of its products by performing a series of activities.
What does this mean?
It means that the organization will increase its market share in the market by buying all the shares or some of the shares, or starting companies that can use this product, or sell this product, and take the profit of this case into its own pocket. There are many ways to use this strategy, which we will examine together in the next part.
As I told you, in the forward integrated vertical strategy, the organization tries to acquire the basis of product sales and distribution, which can have various reasons.
The first reason is that maybe the organization that is selling this product is not doing it with the right quality or is doing it at an exorbitant price. The strength he has is to solve this weakness of his organization and create a distribution company for himself to distribute the products and deliver them to the customers.
There can be another reason, in markets where the market is growing, it is growing, and the organization sees that it is producing a product that is growing, and broadcasting companies are making a good profit from it. A broadcasting company tries to He should do it himself or a sales company should do it himself to take this profit into his own pocket
Or when we have resources in the resource organization that are idle, or they can be idled and put to better use, which is one of the better uses of the vertically integrated forward strategy. did you see
Total integrated strategies Winning strategies means when the organization has high strengths, i.e. it has both high S and high O, and they have weak W and T, especially when they have weak W. We also checked the vertical upward and vertical downwards of the organization.
Consider an organization that is producing dairy products and wants to deliver this product to its customers, what should it do? It should deliver this product to distribution companies, and the distribution company will deliver it to companies such as Afgh Korosh and Refah, and from there to the customers. Smaller grocers deliver them and from there it reaches the customer, what does it do? A distribution company comes and keeps the amount of profit it was giving to the distribution company. Many pharmaceutical and food companies have done this. we do
I would like to add a very important note to you here, and that is that the vertical integrated strategy is not going to invest only in the field of sales and distribution of the organization, which unfortunately is seen in many sources, which is definitely wrong.
Consider that you are an organization, you are producing PVC granules and you are selling that product to an organization that is producing PVC pipes with it. One of the forward strategies here is that you create an organization with a reinvestment and in it You produce with the material you own, which was sold as a product to a bunch of other people and a bunch of other factories, and their basis was ROW MATERIAL, go and produce that product.
It means that when you are producing PVC granules, you should add a pipe line, install two pipe injection lines and produce the pipe product so that you have the pipe market.
I have seen this in many organizations. Our example is one of the important examples that happened in this way in Iran. One of our clients was producing UPVC profiles and is almost the largest producer of UPVC in Iran. Door and window maker, coming to establish a very large factory that they can produce UPV door and window with this profile that they make, which is vertically integrated forward, which greatly strengthens your market and your competitive advantage. raises
Keep in mind that we are reviewing Fred R. David and Michael Porter in this series, both of whom have a strategic, competitive advantage perspective. In the next part, we will talk about another example of Iran in this field
Another one of the most important examples in Iran of successful vertically integrated experiences is the Ofogh Korosh company
Afoq Korosh is a company that is working under the supervision of Golrang Holding, the products that are produced in Golrang are sold in Afoq Korosh, which means that in addition to the sales field, it has also taken the field of product distribution into its own hands, which can be a monopoly for the organization. create and reduce the number of competitors and increase the share of this organization in the market, because it is working very well in the vertically integrated part, and it has more than 1500 branches in the horizon of Korosh, which can provide the products of Golrang Industrial Group. Move forward now
However, there are also many unsuccessful experiences in this field. Keep in mind that integrated strategies will double your problem. You must have two headquarters, two taxes, and two insurances. Is your organization ready for this strategy? Is there or not?
When you go to integrated forward or backward strategies when you are not good in terms of financial foundation, you are great, only go to these strategies when you are great in terms of financial foundation, otherwise you will have problems, by the way, one of these We have seen the organizations.
For the past 5 years, around 1991, 1992, I was a consultant for an organization in the chemical industry. I was working in a broadcasting company. There were 300 people in the factory, and almost 100 people were working in the company. For 2-3 years, we told the CEO that It was a wrong thing, but he did it, and unfortunately, he went bankrupt and could not cover the expenses
Keep in mind that two companies are two problems. Are you ready for this or not? When choosing integrated strategies, be aware that S must be very strong, and O must be very strong, and in contrast to W, it must be weak, that is, it can use S, O, and W. destroy
Write to me what experience you have in your organization in the field of forward and backward vertical strategy and ask your questions about these two strategies below this video. In the third part, we will examine together the horizontal integrated strategy, where the organization comes Increasing its share in the market buys its competitors
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