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Featured Products Promotional FeaturesPosted by: Dental Design 26th January 2024
How vertical integration can help you grow your business
Love it or loathe it Amazon is one of the biggest business successes in recent times. Few can probably recall the time when it was only a digital store undercutting your local book shop and nothing more. But over the past two decades, under the guidance of Jeff Bezos, it has pursued a path of vertical integration, venturing into warehousing, logistics, electronics, household items and even clothing.[i]
Vertical integration is a business strategy where a company expands its operations by acquiring or merging with other businesses operating at different stages of the production or distribution process. This approach enables a company to streamline its operations, gain control over its supply chain, and ultimately enhance its overall efficiency.[ii]
Many companies grow and prosper through acquisition. Recently in the dental industry, global digital dental laboratory group Corus Dental acquired Byrnes Dental Laboratory expanding its reach into the UK market.[iii]Corus now operates 74 laboratories across nine countries.
A different approach
Vertical integration is a little different and takes a different approach. There are two main ways of achieving vertical integration: backward and forward.[iv] A company that opts for backward integration moves the ownership control of its products to a point earlier in the supply chain or the production process. For example, a furniture manufacturer buying a wood distributor. Forward integration is when a company expands by gaining control of the distribution process and sale of its finished products, such as a clothing manufacturer opening its own stores.
One of the key benefits of vertical integration is cost reductions.ii By integrating into the supply chain – for example a dental practice integrating with a dental lab – a company can eliminate the markup costs associated with purchasing inputs from external suppliers.
There are numerous precedents of this in the dental sector. For example, in 2022 Dentex Health bought its very first standalone dental laboratory, Ceramiart Dental Laboratories and the Gensmile dental group boasts 35 practices and four dental laboratories.
Vertical integration also provides greater control over quality and consistency.ii When a company has control over the various stages of production, it can ensure that the output meets its desired standards. This control also enables companies to maintain consistency across their product line and quickly respond to customer feedback or market demands. Imagine what this could mean to the workflow in a dental practice.
Competitive advantage
Another advantage is increased market power and competitive advantage. By controlling multiple stages of the value chain, a company can have a stronger market presence In the current competitive world of dentistry, that can only be a good thing. Integrating a dental practice with a lab can help to optimise its operations, reduce costs and deliver value to patients at a more competitive price.
This approach to growth can also foster innovation and strategic flexibility.[v] Companies that control different stages of the value chain have the advantage of exploring new technologies, processes, or business models that can enhance their operations. For example, a tech company that integrates into component manufacturing can develop proprietary components, which can lead to unique product offerings and differentiation. What could this mean for a dental practice integrating with a lab?
Vertical integration can enhance the overall customer experience.ii By integrating various stages of the value chain, companies can coordinate activities and improve communication and collaboration internally. This coordination can lead to seamless operations, faster response times, and improved customer service. For example, a dental practice that vertically integrates by owning a lab could provide a seamless end-to-end experience for patients, resulting in increased satisfaction and loyalty.
When performed well, vertical integration of businesses can lead to quicker turnaround times and simpler logistics because an entire process is managed in-house. However, it should be remembered that businesses can’t vertically integrate overnight. In fact, it is a long-term process that requires widespread buy-in. The team at Dental Elite has more than a decade of experience in the buying and selling of dental laboratories and dental practices and are able to advise on the potential for possible mergers and acquisitions.
Vertical integration offers several significant advantages to businesses. It can reduce costs, ensure quality and consistency, increase market presence and power, foster innovation, and enhance the overall customer experience. When implemented wisely, vertical integration can be a valuable strategic approach for companies looking to achieve long-term success and competitive advantage. Dental practice and dental laboratory owners should take note.
For more information contact Dental Elite. Visit www.dentalelite.co.uk, email
info@dentalelite.co.uk or call 01788 545 900
Luke Moore Bio:
Luke Moore is one of the Founders and Directors of Dental Elite and has overseen well in excess of 750 practice sales and valuations. With over 19 years working in the dental industry, Luke has extensive knowledge in both dental practice transfers and recruitment and understands the complexities of NHS and Private practices.
[i] Britannica, https://www.britannica.com/topic/Amazoncom
[ii] Investopedia, https://www.investopedia.com/terms/v/verticalintegration.asp
[iii] Health Investor, https://healthinvestor.co.uk/corus-enters-the-uk-with-byrnes-dental-laboratory-acquisition/
[iv] Corporate Finance Institute, https://corporatefinanceinstitute.com/resources/management/backward-integration/
[v] Xingyi Liu, Vertical integration and innovation, International Journal of Industrial Organization, Volume 47, 2016, Pages 88-120, ISSN 0167-7187, https://doi.org/10.1016/j.ijindorg.2016.02.002. [Accessed November 2023]
