Differences Between Horizontal and Vertical Integration
When a business kicks off into the market, it aims to grow its customer base and its capacity to deliver the best of its products and services to the customers. But easier said than done, this has never been a sprint but a marathon. Such expansions in the business world require a lot of resources in terms of finances, human capital, and, most importantly, a business expansion strategy. As a result, companies employ many strategies to establish their place amongst their peers in the market. Still, one can group them into two at a high level, namely horizontal and vertical integration. What is Horizontal Integration?Horizontal integration is a business expansion strategy that involves a company acquiring other companies from the same business line or at the same value chain level to subside competition. You are free to use this image on your website, templates, etc, Please provide us with an attribution linkArticle Link to be Hyperlinked
You are free to use this image on your website, templates, etc, Please provide us with an attribution linkArticle Link to be Hyperlinked What is Vertical Integration?Vertical integrationVertical integration is a corporate approach to take charge of its value chain or supply chain functions. It is the process of holding and managing the distributors, suppliers and retail locations at the company's discretion.read more is a business expansion strategy comprising a company acquiring various entities engaged in different value chainValue chain (VC) refers to the sequence of activities and processes a business undertakes to add value to its product or service at every stage from its inception to delivery.read more stages. You are free to use this image on your website, templates, etc, Please provide us with an attribution linkArticle Link to be Hyperlinked
Horizontal vs. Vertical Integration Infographics You are free to use this image on your website,
templates, etc, Please provide us with an attribution linkArticle Link to be Hyperlinked Key Differences
Comparative Table
Application of Horizontal and Vertical IntegrationThe firms mainly use integration strategy to:
Horizontal integration can prove to be a successful strategy when: –
Though horizontal integration, as explained above, may appear to be a promising strategy, it may not work in all situations. It depends on the company’s value proposition and its resources and capabilities. The model provides a great recipe for success and leverage but is limited to factors such as the synergySynergy is a strategy where individuals or entities combine their efforts and resources to accomplish more collectively than they could individually.read more created through horizontal integration to promote the products and services at the new scaled-up production levels and depends on the company’s place in the entire value chain. Vertical integration helps a company in: –
But vertical integrations may also cause: –
ConclusionChoosing between these inorganic strategies must involve considering short-term and long-term growth objectives. While horizontal and vertical integration mergers represent significant benefits, a company must remember that such a transaction is only successful if the new company integrates strategically and seamlessly. So, the merger should create some value in terms of synergy, market leadership, or cost leadership, which could then be translated into profits, promising a long-term customer base and a sustainable business environment. Whether to employ horizontal or vertical integration has a long-term influence on a company’s business strategy. Recommended ArticlesThis article is a guide to Horizontal vs Vertical Integration. Here, we discuss the top differences between horizontal and vertical integration with infographics and a comparison table. You may also have a look at the following articles: –
What is an example of horizontal integration?An example of horizontal integration would be if two consulting firms merge. One of the firms offers software development services in the defense industry; the other firm also provides software development but in the oil and gas industry.
What is a horizontally integrated company?Horizontal integration is a business strategy in which one company grows its operations at the same level in an industry. Horizontal integrations help companies grow in size and revenue, expand into new markets, diversify product offerings, and reduce competition.
How did horizontal integration help businesses 5 points?1) It reduced the costs along the supply chain, from mining to transportation to manufacturing. 2) It established a company as a monopoly by incorporating all of the competition. 3) It assigned one worker to a job, which helped reduce wasted time and accelerate manufacturing.
Which of the following is a disadvantage of a company using horizontal integration?Disadvantages include regulatory scrutiny, less flexibility, and the potential to destroy value rather than create it.
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