Category: 

What Is Horizontal Integration?

Horizontal integration is a practice in business by which companies that produce a similar product or provide a similar service merge.
Article Details
  • Written By: Daniel Liden
  • Edited By: Bronwyn Harris
  • Last Modified Date: 26 November 2014
  • Copyright Protected:
    2003-2014
    Conjecture Corporation
  • Print this Article
Free Widgets for your Site/Blog
A fortune cookie company was investigated for providing the winning lottery numbers on a fortune cookie message.  more...

November 28 ,  1943 :  The key leaders of the Allied forces during World War II met for the first time in Tehran, Iran.  more...

Horizontal integration is a practice in business by which companies that produce a similar product or provide a similar service merge. Generally, a company will engage in horizontal integration to increase its share of the market for a certain kind of product or service. Such horizontal growth is an important part of the study of business and of microeconomics, and is also an important strategic management skill. If a business comes to control all production of a given product or service, it is said to have a horizontal monopoly.

Integration is considered horizontal only if all mergers and acquisitions are conducted at the same level of production. A car company that merges with another car company is engaging in horizontal integration, but a car company that purchases a refinery or a food chain is not. The goal of horizontal integration is not to control all aspects of production, from raw materials to the final product. It is, instead, to be able to produce a large number of the same product or similar products and to control a large share of the market.

Ad

Vertical integration, on the other hand, does have a goal of controlling all aspects of the production of a product or service. A car company engaging in vertical expansion would, indeed, attempt to acquire refineries, mines, factories, and anything else necessary to make the finished product. A monopoly formed through vertical expansion is known as a vertical monopoly. Horizontal expansion and integration is much more common than vertical expansion and integration.

Horizontal integration brings many advantages to those businesses that are able to effectively expand. They are able to sell more of their products, which is usually the goal of any company. Businesses that supply a few different products or services can more effectively manage their resources after merging. Controlling a larger share of a given market gives a business greater power over the flow of products and resources from other companies. All of this added control, power, and productive ability adds to the effectiveness of the business.

There are possible downsides to horizontal integration, as well. When a large enough share of a market becomes focused in a small number of businesses, anti-trust legal issues can arise. Also, unplanned expansion can be more harmful than beneficial. If a company expands without a solid horizontal plan, it can quickly be overwhelmed. With the proper planning, though, horizontal expansion can lead a business to great rewards.

Ad

More from Wisegeek

You might also Like

Discuss this Article

SauteePan
Post 4

Subway11 -I think that a great example of vertical integration involves companies like Exxon and UPS.

Exxon owns all of its oil refineries in addition to its individual gas stations. They own every aspect of the product that they have.

UPS is similar in that it owns all of its UPS trucks, planes, and proprietary software that allow the company to function. In addition, the company owns UPS stores across the country.

subway11
Post 3

Mutsy -I also think that as companies become more defined they will use horizontal integration by having another company manufacture their product in order to streamline the company’s expenses.

They may even decide to have the product manufactured overseas in order to continue to sell their product in a more competitive way.

mutsy
Post 2

Horizontal and vertical integration really work to help a business expand. I remember a few years ago a company by the name of Market Force which was a mystery shopping provider bought out SG Marketing and Speedmark in order to boost its market share.

It is now the largest provider of mystery shopping services which allows the company to have a competitive advantage over the other mystery shopping providers.

They not only have more clients as a result of the merger but they also have the most registered mystery shoppers because of the merger.

Post your comments

Post Anonymously

Login

username
password
forgot password?

Register

username
password
confirm
email