Vertical vs. Horizontal Integration

Belron is the perfect example of vertical integration.  Vertical integration is defined as an entity owning every aspect of their market.  In the case of Belron, they own manufacturing, distribution and retail.  They make the product, control the distribution (TPA) and finally, sell the product to the consumer.  The beauty of this model is profit is realized in each entity.  If price competition is the marketing strategy, profits can be cut in one or all of the entities to provide a very price competitive product to the consumer.  If profits are already reduced in the entities, then additional cost savings may be initiated at the service level in the form of fast installation, thus reducing the labor cost.  The ultimate goal of a vertical integration is complete control, and eventually higher prices once competition is driven out.

An alternative to the vertical integration model is horizontal integration.  An example of vertical integration is if one entity owns all the retail outlets.  The advantage to this model  is size and obvious control of a particular product or service, economy to scale for advertising, branding, quality while ensuring a consistent level of quality. The disadvantage for the consumer is lack of choice, and without competition, price is set by the retailer.  The NGE is modifying the horizontal integration model by forming independently owned AGR shops into an affiliation with common goals resulting in increased profitability.  By agreeing to certain standards, and by pooling resources for advertising, marketing and a collective voice in the industry, individual shops see individual benefits.  Yet they remain independent to set their own prices and compete on service added value, so the consumer benefits as well.

The interesting thing about our modified definition of horizontal integration is that several individually owned companies work together towards a common goal. The strength of any organization like that is kept in check by the other players. It may not be Utopia, but it certainly is a more "Fair" approach with partners that all have a vested interest than a company that owns and controls all segments. This model becomes a working relationship rather than any one company dictating direction.