Why Take An Integrated Approach?
Many businesses are now choosing to adopt a vertically integrated business model, due to its many benefits. The Resort Group PLC is no exception. But what is a vertically integrated business model and why do companies choose an integrated approach?
Defining Vertical Integration
According to Investopedia, “vertical integration is a strategy where a firm acquires business operations within the same production vertical.” This means that companies essentially acquire businesses that are in the same industry but on different steps of the production chain. Vertical integration can be both forward and backward.
Backward vertical integration would be a company acquiring a manufacturing unit that creates parts for its product or buying land that supplies raw materials. There are several examples of backward vertically integrated businesses. Apple, for instance, owns manufacturing units that create its A-series chips for its iPhones and iPads, as well as its famous touch ID fingerprint sensors. In 2015, Ikea bought parts of the Romanian and Baltic forests to better control its raw materials.
Forward vertical integration is the opposite – it’s when a company buys forward in the production chain to better control the final product and its distribution. Good examples would be a film distributor owning a cinema or digital streaming platform, or a microbrewery owning a pub.
The Resort Group PLC’s Integrated Approach
The Resort Group PLC takes an integrated approach to its hotels and Resorts so as to create a successful portfolio. It has found that a vertically integrated business ensures the best standards for clients and stakeholders. Leisure is a sector with several different parts, and control over those aspects allows The Resort Group PLC to add value and maintain quality across the board.
The company’s current model includes several independent businesses partly or wholly owned by the Group: food and beverage distribution, security, transport, marketing and even medical care.
The Benefits of Vertically Integrated Businesses
There are a number of advantages to vertically integrated businesses. Companies with this model are able to synchronise supply and demand along the production chain, so as to maximise efficiency and cost-effectiveness. Transport costs are also reduced, as the company is better able to control that sector. The risks of investment are lower because there is less uncertainty, which places companies in better positions to fight off foreign competition.
Most importantly, a vertically integrated model allows a company a greater degree of control over its product. Raw materials that could be volatile in price and availability, thus dramatically affecting the cost of the final product, are now controlled in a backward vertically integrated model. This affords the company strategic independence and gives it a chance to dominate the market.
The Resort Group PLC’s vertically integrated model provides all these benefits. Its synergetic brands and services provide individual value while working as a unit to strengthen the overall portfolio. Moreover, strong infrastructural support ensures efficiency gains within management. Overall, the company’s fully integrated strategic model maximises sales and Group value.
To learn more about The Resort Group PLC’s vertical integrated approach and its benefits, get in touch with their team today.