Integration is Important for Business Organization as it results in the low operational costs for day to day businesses of the organizations. It is the main reason that companies prefer third party services in spite of in house development of services or products as integration reduces dependency so they prefer integration of critical businesses. And discuss about Vertical Integration and Horizontal Integration.
Hospitality industry face a continuous pressure from various stakeholders along with the shareholders for capital return, unlocking of cash, sale of non-core assets etc for the purpose of expansion. These pressures make the integration concept critical for the hospitality sector survival. In case, a hospitality organization is focusing on economies of scale, there is high possibility of integration of business.Hospitality business is able to increase its business on global level with the help of integration. It helps in increasing revenues along with the brand enhancement of the hospitality business. There are two kinds of integration that can be witnessed in hospitality industry Barrows, 1999.
Vertical integration: It is a way of management and growth control for the organizations. The organizations which are vertically integrated have a common ownership and it can be easily observed in supply chain companies. In last few years, hospitality companies have uses the strategy of asset-heavy which is one of the vertical integration and is being used by many travel ad hospitality companies over the globe. Companies under this strategy, own their hotel ownership along with the management divisions. In this strategy, companies focus on building the entire property by themselves in spite of focusing on brand presence with the help of mergers and acquisitions under strategy of asset-light. Vertical integration impacts the hospitality business in following manner:
- Expansion beyond the main expertise
- Consolidation of complete business chain
Avoidance of any conflict in interest
- Horizontal integration:
- Horizontal integration is a strategy when organizations acquire or create similar business from same or different sectors in order to expand their business. So, basically the organizations of hospitality sector look forward for the merger and acquisitions with the help of horizontal integration. Horizontal integration helps the organization in increasing their customer base. Example for such integration can be the opportunity seen by the popular chain of hotels for an upcoming destination apart from its presence in all famous tourist destinations across the globe. For such an opportunity, organization will look forward for building a new property at the new destination which would take plenty of time for the building a new property. This will also result in the customer loss for the organization from the particular location. So, organization needs to look forward for acquisition of an already existing business and re branding that property by the name of own organization. Example of such integration is the Marriot international chains of hotel which has more than 3700 hotels, only 6 hotels are hold by the organization itself. With the increasing competition and the huge investments requirements organizations are adopting asset-light growth strategy and horizontal integration helps the organization in doing so Fossen, 2001.