Table of contents
1.0 Horizontal integration
1.2 Advantages and disadvantages of Horizontal Integration
2.0 Vertical integration
2.1 Types of vertical integration
2.1.1 Backward integration
2.1.2 Forward integration
2.1.3 Balanced integration
2.3 Advantages and disadvantages of vertical integration to a firm.
3.0 Horizontal Vs Vertical
Integration in any business is an asymptotic component. Given the ever improving technological innovation, financial challenges and consequently competition from new entrants and existing organization, it’s imperative for an organization to make sure that it remains competitive in the ever competitive, contemporary business environment. Indeed to survive in such an environment it’s critical for management to adopt strategies, which would give the company the much needed market and growth. In this case the concept of integration has become widely adopted by many organizations, with some, opting to merge or acquire new firms, while others seek to grow individually. Either way there are various benefits accrued to either vertical or horizontal integration of firms. This study will critically analyze the benefits accrued to the two types of integrations with emphasize on the benefits of each compared to the other.
1.0 Horizontal integration
Horizontal integration is a concept that identifies type of management control. It is a structural strategy, adopted by an organization, that seeks to sell a particular type of a product in copious markets. Horizontal integration is a concept strategy applicable, when a company is being taken over by another, or merged with, another organization (Joskow, 2002). This other organization must be in the same industry and subsequently in the similar phase of production as the merged organization
A typical example is a case in which, a car manufacturer merges with another car manufacturer. Based on this, both the firms are in the same stage of manufacture and consequently in the same industry. The driving force for Horizontal integration is to ensure consolidation of similar firms and thus monopolize a particular industry (Joskow, 2002). Horizontal integration is also referred to as horizontal expansion. In this case a company expands within a particular industry, its participating in with the goal of increasing its market share
It simply involves expansion by margining and acquisition of supplementary commercial activities at similar echelon of the value chain. Horizontal growth is attainable, through internal extension or by external growth by means of mergers and acquisitions .The acquisitions should be of firms offering analogous products and services. Further under this ideation, a company may expand by growing horizontally into diversified and unconnected businesses.
Figure showing Horizontal a typical integrations
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(Source: Joskow, P L. 2002. Transaction Cost Economics, Antitrust Rules and Remedies,"
Journal of Law, Economics and Organization, 18: 95-116)
The concept of horizontal expansion is being witnessed in many media industry. In this case Rupert Murdoch expansion strategy involved mergers and acquisition of rivaling media centers. This has the aim of consolidating monopoly in the media a market. Subsequently report are emerging that the movie industry is moving from vertical integration to Horizontal integration structure.
Another example of horizontal integration and external growth is depicted by Virgin Active acquisition of £77.6 million valued 55 Esporta gyms. This move enabled the company double its market size in UK. .The Company with this has been able to have over 1 million members in its club range. Virgin Active presently operates and manages 194 clubs, in the UK, Italy, Portugal Spain and South Africa. By acquiring Esporta takeover, the company will benefit a lot from economies of scale.
- Quote paper
- Joseph Katie (Author), 2012, A Report on Horizontal and Vertical Business Integration, Munich, GRIN Verlag, https://www.grin.com/document/211389