Question

What is Uber corporate strategy? is it Vertical integration or Horizontal integration ( Related or Unrelated Diversification)

Answer 1

Also called vertical diversification, vertical integration is a growth strategy where a company will expand its operations to include certain products that are complementary to the products it is offering as of now. For instance, when a firm from producing textiles also starts to manufacture Rayon, this would be a case of vertical integration or vertical diversification.

Horizontal diversification, on the other hand, is the addition of certain parallel/more services/products to the existing product/service line up. In these cases, a company often takes over another company that is positioned at around the same level of the product value chain within an industry. Horizontal integration is hence the acquisition of a similar company for diversifying business offerings, achieving economies of scale in key areas, reducing competition, or increasing the size of operations. Horizontal integration will bring more customers to a company. For instance, a retail chain may buy another to start operating in international locations as well.

Related diversification is a type of horizontal integration when one company acquires another that produces products similar to the ones offered by the company, and which are sold to similar customers in similar markets. For instance, a company that sells food products may acquire another company that sells kitchenware. On the other hand, horizontal unrelated acquisition (or conglomerate diversification) takes place when a firm starts to sell certain dissimilar business offerings to the product/services that it offers. Hence, in unrelated diversification, a firm enters new markets with new products. In this kind of horizontal integration, synergies of core competencies and in other areas are not considered but the investment is based on the financial prospects of any given enterprise and its acquisition.

Vertical integration may not suit Uber enough. Vertical integration happens when the companies add more of their own supply chain to their operations to enhance value. Because of vertical integration, the supply chain comes into better control of the company, which helps the firm capture great importance and profits. However, the Uber business model actually limits the supply chain. Uber itself occupies a relatively smaller space in the overall scheme of things. For instance, the role of Uber is only to control the deal that happens between a rider passenger and the driver. Because Uber is placed right above the user/customer, there are supply chain extensions here, and Uber hence cannot expand in this area. If it tries to expand in the other side, it would need to have its own cabs and drivers, which is what the cab and travel car companies do. There will be huge overhead costs involved and the whole scheme of things will require large amounts of investment. The utility of the Uber business model will change from a congregator/facilitator to a full-scale service provider. The segment is already quite competitive and Uber will not have any competitive advantage (like technology or great customer service) here. Given the size of Uber operations and the number of countries and continents where it offers its services, vertical integration may take decades, and still, no new value or innovation be added. The contractual relationship between Uber and its cab drivers also does not permit or facilitate vertical integration.

That is why Uber is now pursuing a strategy of horizontal integration and is spreading to many new markets. For instance it is diverting the investment it gets from the Middle East investors looking for a diversification of their investment portfolio, and the cheap credits, to expand in areas of local transportation. Horizontal investment in integration will make Uber more useful to the end consumers and the “go to” next-gen tech platform for all kinds of local transportation needs and even more! The development may also help Uber change its reputation from being a middleman and congregator to an even more useful transportation platform. Rapid expansion in the important areas will also help to increase the prices. Because of the value and convenience added, the customers will also not complain. The conscious efforts of the company also show that it is pursuing horizontal integration in other ways as well. For instance, the company is using technology, sensors, devices and other aids/sources to gain massive amounts of data and information related to rider/passenger and driver behavior. The horizontal expansion of Uber is evident by its investment in areas including driverless car technology, air taxis, and food delivery among others.