Horizontal integration

by Admin
Updated: July 29, 2018

Horizontal integration is a technical term for growing a business by doing more of the same

Horizontal integration describes the normal process of expanding a business. Generally speaking, this means doing more of the same either by expanding existing operations or by acquisition of or merger with a competitor.

Horizontal integration can be as simple as giving the customer better choices e.g. additional or updated products.

Typically, it involves trying to gain more customers by expanding geographical range, e.g. adding locations.

Adding an operation that does the same thing in a different way, e.g. adding delivery services to bricks & mortar retail is usually vertical integration.

Advantages

A properly designed expansion should increase customer satisfaction: Product/service is more widely available, of more consistent quality, has better pricing etc.

  • Improved efficiency from eliminating competition.
  • Wider access to markets, e.g. a coffee shop gains locations in neighboring towns.
  • Deeper access to markets, e.g. a travel company acquires agents who appeal to different age ranges.
  • Gain of additional specializations, e.g. acquiring a competitor who has a different mix of skills.
  • Increased buying power (economies of scale).

Downsides

These negatives tend to kick-in as expansion achieves greater market dominance.

  • Reduced innovation from lack of competition.
  • Reduced customer satisfaction from reduced choice from lack of competition.
  • Reduced customer satisfaction from inflated prices from lack of competition.
  • The new structure could represent a monopoly and attract negative attention from consumers as well as legislators.

It is never OK to completely ignore horizontal integration. Businesses that try to remain static ultimately suffer as times change. At a minimum, a business should be continually experimenting with internal expansion and consolidation.

Consolidation

Horizontal integration is a process. On completion you end up with a bigger company. There is either no such thing as a horizontally integrated business or all businesses are horizontally integrated.

Acquiring or merging with other businesses at the same level in the supply chain almost always results in some duplication.

The necessary consolidation can involve job losses which is bad for everyone. More profit is not a satisfactory or safe counterbalance to the resentment and negative PR such redundancies can bring.

Usually, a little extra effort, some retraining and a more ambitious expansion plan leads to a better outcome.

Alternatives

Partnerships and joint ventures can provide many of the benefits of horizontal integration without the associated costs. However, the risks can sometimes be increased as the partners gain knowledge & power.

More info

“Horizontal Integration” at strategicmanagementinsight.com.

“Horizontal Integration: Definition, Benefits & Examples” at study.com.

Internal links

Vertical integration Buying a business Compromise Go to Articles
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