When companies become large enough and have enough capital, they often decide to acquire other businesses. This is known as "integration strategy. Horizontal integration involves minimizing competition and increasing market share by purchasing competing businesses, while vertical integration involves purchasing suppliers or distributors to streamline the process and reduce the costs of bringing a product to market. Horizontal integration occurs when a company buys a company of the same type to increase market share or reach new customers, whereas vertical integration involves purchasing a supplier or distributor to streamline production. Companies that grow through horizontal integration seek to purchase companies in the same industry , which can offer many benefits, including:.
Horizontal integration - Wikipedia
One of the main life cycle stages a startup will experience is the business growth stage. A business usually seeks to grow to gain economies of scale or to reduce risk. Ultimately the aim for any business is to grow, become more profitable, and increase the return on investment to shareholders. Business growth, which in this context usually refers to sales growth, can either be internal or external growth. External business growth occurs when the business joins together with another business either by merger or acquisition to form a larger business. In the example Business A wants to grow and merges with another Business B.
Should You Expand Through Horizontal and Vertical Integration?
Firms and companies try to gain more of the market control than their competitors to become the number one in the specific field and gain more and more profits. The strong competition in the market is most primarily eliminated by improving the quality, lessening the prices, and doing best possible promotions of their product. The other possible plan to gain the market control, and to eliminate the strong competition is to acquire or to have a merger with the companies. We came across the two terms in the business field; Horizontal Integration and Vertical Integration, both of these terms explain the nature and type of the growth and expansion of companies using merger or acquisition.
Horizontal integration is the process of a company increasing production of goods or services at the same part of the supply chain. A company may do this via internal expansion, acquisition or merger. The process can lead to monopoly if a company captures the vast majority of the market for that product or service. Horizontal integration contrasts with vertical integration , where companies integrate multiple stages of production of a small number of production units. Horizontal integration is related to horizontal alliance also known as horizontal cooperation.