Horizontal Integration

Horizontal Integration is a strategy used by a business or corporation that seeks to sell a type of product in numerous markets. Like its counterpart, Vertical Integration, Horizontal Integration is a potential strategic move which a firm may consider.  Horizontal Integration in marketing is much more common than Vertical Integration is in production.

Horizontal Integration means to acquire business activities at the same level of the value chain. This can mean:

  • Acquiring activities dealing with similar products, so that synergies accrue and there is a degree of sensible diversification. For example complementary confectionary products supported by the same basic marketing messages.
  • Acquiring activities that are substitutes for one’s products. Hence a firm can cover the threat from substitutes implicated as one of Porter’s 5 Forces. For example Canon moving into digital camera’s.
  • Acquiring competitors. In this way reducing the threat from competition.
  • Completing the product range which is expected by the customer. For example, Microsoft has pursued this strategy with its Microsoft Office Software.

Horizontal integration occurs when a firm is being taken over by, or merged with, another firm which is in the same industry and in the same stage of production as the merged firm, e.g. a car manufacturer merging with another car manufacturer. In this case both companies are in the same stage of production and also in the same industry. This process is also known as a “buy out” or “take-over”. The goal of horizontal integration is to consolidate like companies and monopolize an industry.

A monopoly created through horizontal integration is called a horizontal monopoly.

A term that is closely related with horizontal integration is horizontal expansion. This is the expansion of a firm within an industry in which it is already active for the purpose of increasing its share of the market for a particular product or service.
Nineteenth century oil tycoon John D. Rockefeller and his company Standard Oil are frequent examples of the use of horizontal integration.

Strengths of Horizontal Integration

  • Economies of scale.
  • Synergy. Economies of scope.
  • Defense against substitutes.
  • Reduction in competition.
  • Fulfilling customer expectations.
  • Increased negotiation power. Get more leverage over powerful suppliers or customers.

Limitations of Horizontal Integration

  • Synergies may be more imaginary than real. A famous example was SAAB with its cars and aircraft.
  • Substitutes market is often very different. To turn an acquisition into a success is a big and lengthy management challenge.
  • Reduction in competition, or even a monopoly, may lead to anti-trust issues.
Business frameworks like Horizontal Integration are invaluable to evaluating and analyzing various business problems. You can download business frameworks developed by management consultants and other business professionals at Flevy here.

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