Companies can also practice horizontal integration by buying or merging with their competitors. We are sorry that this post was not useful for you! Is the Horizontal Integration necessary for the positioning of the company in new territories? simple product diversification. This article explains Horizontal Integration in a practical way. The combined entity of Arcelor-Mittal is the world’s largest steel producer. Horizontal integration is similar to this in that a company (that would be you in this example), wants to seek out different deals. Question 6. November 3, 2020. Through integration, the parties involved can share institutional knowledge while reducing expenses. Horizontal integration is when two companies at the same stage of the production process merge or take over each other. Much more common and simpler than vertical integration, Horizontal integration (also known as lateral integration) simply means a strategy to increase your market share by taking over a similar company. Large companies employ economies of scale when they are able to cut costs while ramping up productions—they take advantage of their size. These days Apple is one of the biggest companies in the world in terms of having access to various markets in the world of technology. A horizontal merger causes a measurable increase in industry concentration (equal to twice the product of the market shares of the bidder and target when using the Herfindahl measure of concentration). Examples of hor… Which offers workers the better opportunity to better yourself? However, they may be in the same or different industries. The examples show that, in many cases, horizontal integration pays off as those involved can widen their reach and eliminate weaker competitors. Vertical integration is a business strategy used to expand a firm by gaining ownership of the firm's previous supplier or distributor. These companies are usually competitors and merge to gain higher market power and economies of scale. This helps the organization to achieve its desired commercial position within the market. Facebook's horizontal integration of Instagram was truly historic with a return of 100% in just over six years. In horizontal integration, by contrast, a company attempts to control a single stage of production or a single industry completely, which lets it take advantage of … This was one of the main Mexican juice companies, with the objective of expanding its beverage portfolio mainly in Latin America. There are several types of, and reasons for, mergers. Horizontal integration involves minimizing competition and increasing market share by purchasing competing businesses, while vertical integration involves purchasing suppliers or distributors to streamline the process and reduce the costs of bringing a product to market. This works well when a company has a successful business model and needs to add more customers to increase their profit at higher economies of scale. The integration combined the first and second largest energy corporations in the United States. Apart from Horizontal Integration, there is also Vertical Integration. Vertical Integration aims to reduce manufacturing and production costs, create economies of scope, make better use of resources and have greater control and planning from the beginning to the end of the value chain, reducing dependence on intermediaries and thus having a single owner who has activities in different phases of the industry in which the company is. Horizontal Integration is a strategy that a company adapts when it seeks to offer its products or services in different markets in order to strengthen its position in the industry. Do you recognize the practical explanation or do you have something else to add? If a company owns every bit of a production process then it is known as a horizontal monopoly. Both Facebook and … First, name a company that practices horizontal integration. first and second largest energy corporations. Horizontal integration, as we have seen, is a company’s acquisition of a similar or a competitive business—it may acquire, but it may also merge with or takeover, another company to strengthen itself—to grow in size or capacity, to achieve economies of scale or product uniqueness, to reduce competition and risks, to increase markets, or to enter new markets. Follow us on: Facebook | Instagram | YouTube. as a block device which uses the same interfaces and possesses its own file system. Vertical integration is often closely associated with vertical expansion which, in economics, is the growth of a business enterprise through the acquisition of companies that produce the intermediate goods needed by the business or help market and distribute its product. Horizontal integration involves the combination of two business operating in the same industry and at the same stage of the supply chain. Utilizing these kind of opportunities can come with great benefits. The Horizontal Integration Senior Steering Group, which involves both the defense and intelligence communities, will review major issues relating to systems integration. From: Handbook of Empirical Corporate Finance, 2008. Question 5. To achieve that goal it’s likely they will acquire or merge with another company to become much more competitive and achieve a stronger position in the market environment. The deal is now widely considered to have literally and figuratively reanimated Disney, expanded its market share, and boosted its profits. Vertical integration, on the other hand, has higher capital. Horizontal Integration. Boost your skills with our learning platform. ‘Horizontal integration is a term in the business world that refers to the acquisition of a business by another business that is operating at the same level of the supply chain either in a … The Horizontal Integration strategy is most effective when: Using the Horizontal Integration strategy, organizations can take advantage of the following advantages. Question. This take over / merger / buyout can be done in the same geography or probably in other countries to increase your reach. A restaurant wants to expand, however, instead of starting from scratch at another location in the city, it merges with another restaurant since this restaurant has been in business for a long time and is recognized by its customers. 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