Advantages and disadvantages of vertical and horizontal integration

Horizontal Integration Definition, Example, Advantages & Disadvantages

advantages and disadvantages of vertical and horizontal integration

3.9 17 Vertical Integration


That's the process businesses use to turn raw material into a product and get it to the consumer. There are four phases of the supply chain: commodities , manufacturing, distribution, and retail. A company vertically integrates when it controls two or more of these stages. There are two types of vertical integration. Both combine at least two of the four phases of the supply chain. The difference depends on where the company originated.

Access insights and guidance from our Wall Street pros. Find the product that's right for you. But what actually is vertical integration? And how is it used as a business strategy to create some of the most powerful conglomerates in the world? The supply chain incorporates all the steps from taking a raw material to turning it into a product and selling that product -- in that sense, companies that are vertically integrated own multiple or all parts of their supply chain. For example, a company may buy out a producer of cotton as well as a t-shirt manufacturing company, and then might market and sell the products themselves.

If a company is expanding their business operations into different steps, but remain on the same production path, then this would be vertical integration. An example of this would be a manufacturer that acts as its own supplier and distributor. It can be carried out in two ways: forward or backward integration. Distribution would be a form of forward integration. Backward vertical integration goes in the opposite direction. A manufacturer assuming control of the supplies needed for their goods or services would be focused on backward integration. The primary advantage of vertical integration is that it improves efficiencies while reducing costs.

Companies that undergo horizontal integration can increase market share, revenue and economies of scale, but may face regulatory scrutiny.
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Vertical integration and horizontal integration are business strategies that companies use to consolidate their position among competitors. Vertical integration is a competitive strategy by which a company takes complete control over one or more stages in the production or distribution of a product. A company opts for vertical integration to ensure full control over the supply of the raw materials to manufacture its products. It may also employ vertical integration to take over the reins of distribution of its products. A classic example is that of the Carnegie Steel Company, which not only bought iron mines to ensure the supply of the raw material but also took over railroads to strengthen the distribution of the final product.

It is a type of integration strategies pursued by a company in order to strengthen its position in the industry. A corporate that implements this type of strategy usually mergers or acquires another company that is in the same production stage. For example, Disney merging with Pixar movie production , Exxon with Mobile oil production, refining and distribution or the infamous Daimler Benz and Chrysler merger car developing, manufacturing and retailing. The purpose of horizontal integration HI is to grow the company in size, increase product differentiation, achieve economies of scale, reduce competition or access new markets. When many firms pursue this strategy in the same industry, it leads to industry consolidation oligopoly or even monopoly. HI can occur in a form of mergers, acquisitions or hostile takeovers. Merger is the joining of two similar sizes, independent companies to make one joint entity.

Undergoing horizontal integration can be very beneficial for two companies. Typically, this happens when two companies competing in the same industry at the same stage of production decide to unify. But before considering it, businesses should weigh the pros and cons of the strategy and how becoming one large organization would play out for their bottom line. When it is done correctly, there are many advantages to horizontal integration. These include but are not limited to an increase of market power or market share, reduced competition, and increases in other synergies. But as with anything else, there are also downsides. Among them are antitrust issues and legalities, a reduction in flexibility, and destroying value rather than creating it.

Advantages and Disadvantages of Vertical and Horizontal Integration - Essay Example

Horizontal integration refers to expansion of business at the same point in the supply chain.,


Advantages & Disadvantages of Horizontal Integration




Horizontal Integration: Benefits and Drawbacks





  1. Rachel F. says:

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  2. Anahid Q. says:

    When two businesses or organizations at different levels of production merge, vertical integration occurs.

  3. Fifi C. says:

    Horizontal Integration in Strategic Management

  4. Jana M. says:

    Horizontal integration is the process of integrating with the competitors or leading business that provides same goods or services.

  5. Finley W. says:

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