The forward integration strategy has been commonly used by many companies due to its popularity in different industries which includes automobiles, fast food, information technology and etc. Forward integration strategy is adopted to gain ownership over its distributors and retailers. This strategy could be implemented by acquiring the existing dealers or company can start opening its outlet on the main locations.
Apple Inc. has been working on forward integration strategy since many years. Currently, Apple has 361 stores around the world under its ownership. Microsoft inspires from Apple Inc. are going to open its own stores to directly interact with customer to understand their needs and wants.
An easy and effective way of implementing forward integration is franchising. In USA majority of companies has been using franchising to distribute its products and services. Franchising is considered the best way to expand the business around the globe because the financial are distributed among many stakeholders. Macdonald’s and KFC are among the companies who have opened stores globally by employing the franchising.
The forward integration may be an effective strategy in following cases:
1. Existing distributors and retailers are expensive and not able to meet the distribution requirements of the firm.
2. When there are no quality distributors available which gives competitive edge to the firm over its competitors.
3. When an organization has resources in terms of human resources to manage and finance to meet the expenses of distribution channels.
4. When the organization has high production facilities to meet the demand of customers. Forward integration will strengthen organization value chain from production till sales and support of the products.
5.When the current retailers or distributors have high margin which increase the cost of the product and will result in high price of the product. By implementing forward integration company can reduce the cost of distribution and lower the price of the products to increase it sales.
6.Organization is competing in an industry which is growing and expected to grow more in future.