Horizontal Inte⭕gration 💟vs. Vertical Integration: An Overview

Horizontal integration and vertical integration are distinct strategies♓ that companies adopt to consolidate ♏their positions in their industries and set themselves apart from their competitors. Both involve acquiring other businesses to expand.

• In horizontal integration, a business grows by purchasing related businesses—namely, its competitors. That boosts its market share.
• In vertical integration, a business acquires a company that operates in a sector that is crucial to its supply or distribution chain. That gives the company greater control over the processes it relies upon.

Horizontal Integration

Horizontal 🦩integration is a growth strategy that c✃ompanies use to expand their position within their industries and get an edge on their competition.

They do this by taking over another company that operates at the same level of the 澳洲幸运5开奖号码历史查询:value chain. That is, ﷽both companies offer similar (if not identical) goods and services and rely on a similar customer base.

For example, if a department store chain wants to expand its footprint, buying another chain that operates in another state or country is one way to go about it. The purchasing company gains more revenue and reaches a wider market.꧙

Horizontal integration can help companies cut down on their costs by sharing technology, marketing efforts, 澳洲幸运5开奖号码历史查询:research and development (R&D) production, and distribution. Ideally, the expanded department store chain will be more profitable than the two chains were when they operated separately.

Vertical Integration

Vertical integration is growth through the acquisition of a ♔producer, vendor, supplier, distributor, or other company that the acquirer may already be doing business with.𒁏

Companies that choose to integrate vertically do so to strengthen their supply chain, reduce their producti✨on costs, capture upstream oꦓr downstream profits, or access new distribution channels.

澳洲幸运5开奖号码历史查询: The🥂re are two types of vertical integration:

• Backward integration occurs when a company buys a business that makes a product that the acquiring company relies on for its business. For example, a car manufacturer pursues backward integration when it acquires a tire manufacturer.
• 澳洲幸运5开奖号码历史查询:Forward integration occurs when a company wants direct control of a part of the post-production process. The car manufacturer might acquire an automotive dealership to sell the vehicles it produces. This gets the manufacturer closer to the consumer and provides it with additional revenue.
  

Advantages and Disadvantages

Each of these stra💜tegies have their proꦯs and cons.

Horizontal Integration: Pros and Cons

While there can be many benefits to horizon🐷tal integration, the primary ones include:

• Access to a larger customer base
• Higher revenue
• Reduced costs through economies of scale
• Taking a competitor off the playing field

However much sense it makes from a business standpoint, there are potential downsides for consumers. For that reason, this strategy can face a high level of scrutiny from government regulators, who may invoke 澳洲幸运5开奖号码历史查询:antitrust laws to stop it from happening.

Specifically:

• Merging two companies in the same industry cuts down on competition and reduces the choices available to consumers.
• It may lead to a monopoly in which one company controls the availability, prices, and supply of products and services.
• The new, larger company could take advantage of its dominance by raising prices and narrowing product options.

In addition to those potential obstacles, creating a larger company can result in increased bureaucracy and reduced flexibility. There is also a significant chance of failure if there isn't synergistic energy between the two companies and their cultures clash.

Vertical Integration: Pros and Cons

Vertical integration can help a company:

• Reduce costs across different stages of its production process
• Maintain tighter quality control and a better flow of information across the supply chain
• Increase sales
• Improve profits
• Reduce or eliminate the leverage that suppliers have over the company

The drawbacks of vertical integration include:

• A concentration of resources in one approach
• Increased risk in uncertain market environments
• High acquisition costs

Horizontal Integration Examples

• Kroger and Albertsons: In 2023, the grocery company Kroger announced it would acquire the grocery company Albertsons to create one of the largest national grocery chains, competing with Walmart and Amazon. The deal collapsed in December 2024 after a federal judge blocked the merger citing reduced competition in the supermarket business, leading to higher prices for consumers.
• CVS and Signify Health: In 2024, CVS acquired Signify Health, a technology and services company that facilitates provider care, allowing clinicians into the homes of customers to facilitate a variety of medical services. This allowed CVS to advance its medical care by directly entering the homes of individuals, bringing them closer to consumers.
• Walt Disney Company and 21st Century Fox: Disney's acquisition of 21st Century Fox was finalized in March 2019. The goal was to increase Disney's content and entertainment options, expand internationally, and grow its direct-to-consumer offerings including ESPN+, Disney+, and the two company's combined ownership stake in Hulu. The deal also included 20th Century Fox (now 20th Century Studios), Fox Searchlight Pictures, Fox 2000 Pictures, Fox Family and Fox Animation, Twentieth Century Fox Television, FX Productions and Fox21, FX Networks, National Geographic Partners, Fox Networks Group International, Star India, and Fox's interests in Hulu, Tata Sky, and Endemol Shine Group.
  

Vertical Integration Examples

• Ikea buys a forest in Romania: The Swedish furniture giant bought an 83,000-acre woodland reserve in northeastern Romania in 2015. It was the first effort the company has made at managing its forest operations for use in its products. IKEA said it purchased the forest to manage wood sustainably at affordable prices.
• Netflix launches a studio: Netflix is one of the most significant examples of vertical integration in the entertainment industry. Before opening its studio, Netflix was always at the end of the supply chain as it solely distributed films and television shows created by other companies. The studio has been creating exclusive Netflix content since 2013.

The Bottom Line

Horizontal integration and vertical integration are two growth strategies that can help companies expand. Horizontal integration increases business by enlarging the customer base (and removing a competitor). Vertical integration increases revenue by asserting greater control over the supply chain.