Summary
Once the hospitality business becomes successful, the next step is to grow further. The expansion of a company involves both benefits and risks for the business owner, emphasizing the need for choosing and implementing the right growth strategy. The diversification of services can improve brand recognition and expand the customer base. According to Stengel (2012), business expansion can be classified into three categories: horizontal, vertical, and conglomerate integration. For a business leader, it is crucial to consider the use of these strategies since they are designed to increase efficiency and improve the market representation of a company. This paper aims to discuss horizontal, backward vertical, and forward vertical integration strategies, as well as the conglomerate strategy in regard to a hotel business in Jacksonville, Alabama.
Horizontal Integration
Horizontal integration occurs when a business acquires a related company operating at the same level of the industry’s value chain. As stated by Ketchon and Short (2012), this strategic decision is based on a number of benefits such as lower costs, reducing the rivalry level in the industry, and improving profitability. Based on the previously conducted research, the demand for hotels in Jacksonville, Alabama, is marked by a growing tendency which implies that my business would benefit from an expansion.
If I were to engage in horizontal integration, I would consider acquiring hotels that have a similar corporate culture and goals and appeal to the same target audience since it would make the company merger smooth and efficient. Furthermore, I would need to estimate which competitors could provide my company with a competitive advantage. Identifying the options among the direct competitors would assist my business in increasing the customer base and revenue. For instance, University Inn, which specializes in housing students, is one of the most popular hotels in the area. Its location within a 10-minute drive of Jacksonville State University can provide a competitive advantage since it would serve as an attraction for many visitors. Hence, I would focus on acquiring University Inn due to its market value. At the same time, while horizontal integration could benefit my business, other strategies can be more efficient in the long run.
Vertical Integration
Vertical integration is another approach that can be implemented by companies that seek to expand their scope. As claimed by Stengel (2012), this strategy refers to acquiring firms and operations at a different stage of a value chain. In particular, forward vertical integration can occur when the business expands to a later stage, while backward vertical integration suggests purchasing a company making an input product (Stengel, 2012). For the hotel business, vertical integration is a worthwhile strategy since my company can partner with restaurants, bars, transport firms, or travel agencies to improve brand recognition and engagement, as well as increase value for the customer. Hence, my business should vertically integrate over time to help our guests benefit from various services while growing the company’s power in the marketplace.
In particular, backward vertical integration would be relevant as it would allow my company a greater degree of control over the products and services. This model can provide the business with strategic independence and maintain high quality across all the processes and operations. For example, acquiring companies engaged in food and beverage distribution and the transport industry would positively impact the quality and cost of the final products and services for our guests. Better control over the meals served in the restaurants and convenient transfer options are beneficial for both the customer and the company. Furthermore, vertical integration can improve my business’s competitiveness since it strengthens the overall portfolio.
Conglomerate diversification
Conglomerate diversification refers to another growth strategy where a company adds new products or services that belong to a different value chain. According to Holden (2011), the new entity becomes a conglomerate merger and can excel in more than one business type. Pursuing this strategy would include such benefits as a wider variety of products and services, a strengthened brand image, and increased profitability. Furthermore, this approach would assist my company in overcoming competition. The first option is unrelated diversification; however, it appears feasible for large corporations and involves significant risks. Hence, my business would benefit more from a related diversification strategy. For instance, the food and beverage services, restaurants, bars, meeting spaces, gyms, and spas can add value to the customer, and such a variety of services can attract more visitors. Since the competition in the industry in Jacksonville, Alabama, is expected to continue growing, increasing competitive advantage becomes an acute problem. Conglomerate diversification is one of the strategies to provide my business with a competitive advantage due to the larger range of hotel services.
To conclude, business expansion is an essential step for any successful company since it provides a basis for further growth. In the hotel industry, horizontal, vertical, and conglomerate integration can benefit the company if appropriately implemented. In particular, backward vertical integration and conglomerate diversification are particularly relevant for the hotel business in Jacksonville, Alabama. Such a strategy would improve the company’s market representation and brand image in the long run, as well as lower costs and attract new customers.
References
Holden, P. (2011). Business integration – vertical, horizontal and conglomerate [Video]. YouTube.
Ketchon, D., & Short, J. (2012). Selecting corporate-level strategies. Flat World Education. Web.
Stengel, D. (2012). Economics of organization. Flat World Education. Web.