Horizontal Integration Definition, Example, Advantages & Disadvantages

Thu, 04/17/2014 - 23:52 -- Umar Farooq

Horizontal Integration Definition

Horizontal integration is the process of integrating with the competitors or leading business that provides same goods or services. Integration may be done either by merging (joining of two companies to make one) or by acquiring (purchase of another company). Horizontal Integration is a strategy that helps the expansion of a business to a profitable level. This form of expansion is contrast to vertical integration. The main purpose of Horizontal Integration is to increase the product level, grow the size and name of the company.  HI Strategy is considered effective when

  • Industries are growing
  • Company possess more resources, competencies and capabilities from competitors
  • The company can manage merger & acquisition with its resources

what is horizontal integration meaning & exapmples

Examples of Horizontal Integration

Company Action

Companies Involved in HI

Acquiring

HP

Pfizer

AT&T

Facebok

Google

Acquired

Compaq

Wyeth

T-Mobile

WhatsApp

Motorola
Mobility

Advantages of Horizontal integration

Higher Efficiency

Since the companies work together, they yield more services or products. However it cost less to purchase an existing product than to start another one from score. Horizontal integration becomes more profit when the company grows in size. Cost of developing is less when compared to total income. This helps the company to save money and increase profits. They also have more strength over supplier and distributor. It reduces the competitor.

advantages-and-disadvantages-of-horizontal-integration

Economies of Scale

Economies of scale give expense-playing point to the companies through extension of their product yield. The point when products are prepared in bigger amounts, the normal expense for every unit decreases; in this manner we expand the productivity of the company. Incorporating evenly furnishes the companies with more extensive access to diverse unreached markets, bringing about an increment sought after of their product. Achieving to economies of scale by HI can help the company to accomplish require imposing business model and ignore from the business sector.

Economics of Scope

Horizontal integration allows achieving economies of scope. Since companies sharing the resources, it helps removing cost redundancy. It is likewise less expensive to offer the same product from different areas than it might be to present a totally new product extend. Horizontal integration brings interaction between the companies.

International Trade

Integrating horizontally helps the company to enter outside businesses immediately. This diminishes the expense of international trade by permitting the company to both handle and offer the product in the foreign market.

Disadvantages of Horizontal Integration

One drawback of Horizontal Integration is that misfortunes from a recently obtained business may cut into the benefits from an existing one. Hence new acquisitions must be made just after cautious investigation. Purchasing up every rival in sight may would appear that an extraordinary thought, yet without due constancy it could undoubtedly backfire.

Merger & Acquisition often increase the value of the companies. M&A fall flat and demolish the worth of the companies included in it because of the fact that normal cooperative energies never appear.

Horizontal integration can prompt monopoly, which is highly restricted by numerous governments because of absence of competition. Consequently, governments typically need to accept any larger M&A before they can happen.

Larger companies are harder to handle and they are less adaptable in bringing developments with the business.