What Is Horizontal Integration? Definition and Examples (2023)

What Is Horizontal Integration?

Horizontal integration is the acquisition of a business operating at the same level of the value chain in the same industry—that is, they make or offer similar goods or services. This is in contrast to vertical integration, where firms expand into upstream or downstream activities, which are at different stages of production.

Key Takeaways

  • Horizontal integration is a business strategy in which one company grows its operations at the same levelin an industry.
  • Horizontal integrations help companies grow in size and revenue, expand into new markets, diversify product offerings, and reduce competition.
  • Disadvantages of horizontal integration include regulatory scrutiny, the reduction of choices for consumers, less internal flexibility, and the potential to destroy value rather than create it.
  • A company can horizontally integrate by merging with another company, acquiring another company, or internally expanding its operations.
  • A contrasting approach to horizontal integration is vertical integration, in which a company acquires a firm operatingin the same industry, but at a different stage of the production process.

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Horizontal Integration

Understanding Horizontal Integration

Horizontal integration is a competitive strategy that can create economies of scale, increase market power over distributors and suppliers, improve product differentiation and help businesses expand their market or enter new markets. By merging, two businesses may be able to produce more revenue than they would have been able to do independently.

However, when horizontal mergers succeed, it is often at the expense of consumers, especially if the merger reduces competition. For this reason, horizontal mergers are heavily scrutinized by regulators, to see if they violate antitrust laws.

Indeed, the real motive behind a lot of horizontal mergers is that companies want to reduce competition—either from potential new entrants, established rivals, or firms offering substitute or alternative goods.

(Video) Horizontal Integration Vs Vertical Integration: with Definition & Comparison Chart

Types of Horizontal Integration

There are three primary forms of horizontal integration: mergers, acquisitions, and internal expansions.

Merger

When two companies merge, two separate entities create a new, joint organization. The brand of one of those two companies is usually retained, though the composition of operations and personnel is shared between both of the former individual companies. In addition, the product line of both companies is often similar and equally competitive in the market.

In a merger, both companies are striving to become a larger presence in their existing market. Most mergers are of similar firms, where integration of the two companies may be seamless due to the similarities between what the two former companies used to do.

Acquisition

Similar to a merger, an acquisition occurs when one company outright takes over the operations of another company. Though the two companies technically join together, one company remains in control. The acquiring company's staff, executives, and operations often remain in place, while the acquired company's resources are integrated as management sees fit.

Companies often pursue acquisitions in an attempt to get something specific. For example, Microsoft specifically wanted to enhance its presence in the video game market. Therefore, it acquired Activision Blizzard in January 2022. This example of an acquisition shows an often deliberate strategy for a specific sector in which a company wants to achieve a very specific goal.

Internal Expansion

Companies can also embark on horizontal integration by making more conscious allocations of internal capital. Through internal expansion, a company simply chooses to strategically change course and apply more resources in a different way. For example, a restaurant can expand to offer catering companies, or a beverage manufacturer may branch off to make food products.

In these examples, a company continues to operate how it use to. However, instead of committing capital to acquire an external company or transition with a merging firm, it decides to deploy those resources in-house to train staff, buy equipment, make capital investments, and grow a new branch of operations on its own.

The M&A market was as hot as ever in 2021. According to McKinsey, the total value of larger deals (valued greater than $25 million) for the year peaked at $5.9 trillion, up 37% from 2020.

(Video) Horizontal Integration

Advantages and Disadvantages of Horizontal Integration

Advantages

Companies engage in horizontal integration to benefit from synergies. There may be economies of scale or cost synergies in marketing; research and development (R&D); production; and distribution. Or there may be economies of scale, which make the simultaneous manufacturing of different products more cost-effective than manufacturing them on their own.

Procter & Gamble’s 2005 acquisition of Gillette is a good example of a horizontal merger that realized economies of scope. Because both companies produced hundreds of hygiene-related products from razors to toothpaste, the merger reduced the marketing and product development costs per product.

Synergies can also be realized by combining products or markets. Horizontal integration is often driven by marketing imperatives. Diversifying product offerings may provide cross-selling opportunities and increase each business’ market. A retail business that sells clothes may decide to also offer accessories or it might merge with a similar business in another country to gain a foothold there and avoid having to build a distribution network from scratch.

Disadvantages

Like any merger, horizontal integration does not always yield the synergies and added value that was expected. It can even result in negative synergies which reduce the overall value of the business, if the larger firm becomes too unwieldy and inflexible to manage, or if the merged firms experience problems caused by vastly different leadership styles and company cultures.

There are regulatory issues as well. If horizontal mergers within the same industry concentrate market share among a small number of companies, it creates an oligopoly. If one company ends up with a dominant market share, it has a monopoly. If a merger threatens competitors or seems to drastically restrict the market and reduce consumer choices, it could attract the attention of the Federal Trade Commission.

Horizontal Integration

Advantages

(Video) Horizontal And Vertical Integration Made EASY! Advantages, disadvantages and examples.

  • May result in efficiencies, economies of scale, or synergies not otherwise possible

  • May reduce company risk through product and market diversification

  • May increase profitability through new cross-selling opportunities

  • May result in decreased costs due to better processes and greater expertise

Disadvantages

Horizontal Integration vs. Vertical Integration

Both horizontal integration and vertical integration are the practice of a company expanding its current operations. However, each process aims to have a different strategic outcome. Horizontal integration occurs when a company aims to remain within its current part of the supply chain. The company often wants to enhance its existing product or get a larger share of the market.

(Video) Horizontal and Vertical Integration (Business Growth Strategy)

Vertical integration is the strategy of expanding across the supply to get better at processes the company is currently not involved in. For example, a manufacturer may acquire a raw materials distributor to have better control over the quantity, pricing, or timing of when it gets raw goods. The company is expanding from its current position in the manufacturing process and performing a backward vertical integration.

Vertical integration is often undertaken to have better control over a long process, while horizontal integration is more suitable for a company wanting to become more niche for something specific. Horizontal integration often entails similar companies coming together, while vertical integration often entails different companies related to a similar product coming together.

The ultimate goal of vertical integration is to become independent of suppliers and control more aspects of the supply chain. On the other hand, horizontal integration strives to eliminate competitors, grow in market size, and create economies of scale.

Examples of Horizontal Integration

Many mergers that hit news headlines are examples of horizontal integration. If a company acquires or merges with another company and both firms are in a very similar industry, it is most likely an example of horizontal integration. Specific examples include:

  • JetBlue's 2022 merger with Spirit Airlines
  • Marriott's 2016 acquisition of Starwood Hotel & Resorts
  • Anheuser-Busch InBev's 2016 acquisition of SABMiller (brewers)
  • AstraZeneca's 2015 acquisition of ZS Pharma (biotech)
  • Volkswagen’s 2012 acquisition of Porsche (automobiles)
  • Facebook Inc.'s (now Meta Inc.'s) 2012 acquisition of Instagram (social media)
  • Disney's 2006 acquisition of Pixar (entertainment media)
  • Mittal Steel’s 2006 acquisition of Arcelor (steel)

What Is the Difference Between Horizontal Integration and Vertical Integration?

Horizontal integration is the strategy of acquiring other companies that reside along a similar area of the supply chain. For example, a manufacturer may acquiring a competing manufacturing firm to better enhance its process, labor force, and equipment.

Vertical integration occurs when a company acquires a company outside of their current position along the supply chain. For example, a manufacturer may acquire a retail company so that the manufacturer can not only control the process of making the good but also selling the good as well.

What Is the Main Advantage of Horizontal Integration?

The main advantage of horizontal integration is the strategically focused decision to penetrate a specific section of a supply chain. Horizontal integration allows a company to potentially acquire a competitor, gain greater insight into the market, expand its product line, or create economies of scale. Horizontal integration is a way for a company to simply do better at what it was doing before.

Why Is Horizontal Integration Important?

Horizontal integration is important because it allows a company to grow, expand, diversify, and gather a larger market presence. Horizontal integration further enhances a company's current position in the market and, instead of transitioning to widely different aspects of the supply chain, it allows a company to become more competitive in the space it was already operating in.

(Video) Horizontal Integration VS Vertical Integration || Strategic Management Series

The Bottom Line

Companies looking to grow in size, increase revenue, expand to new product lines, and diversify operations may consider pursuing horizontal integration. Horizontal integration occurs when similar companies merge in the same stage of a supply chain merge. As opposed to a vertical integration which helps a company shift to earlier or later in the supply chain, horizontal integration further solidifies a company's current position along a manufacturing process.

FAQs

What is good example of horizontal integration? ›

One of the most definitive examples of horizontal integration was the acquisition of Instagram by Facebook (now Meta) in 2012 for a reported $1 billion. 1 Both companies operated in the same industry (social media) and shared similar production stages in their photo-sharing services.

What do you mean by horizontal integration? ›

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.

What is horizontal integration and vertical integration with example? ›

Horizontal integration is when a business grows by acquiring a similar company in their industry at the same point of the supply chain. Vertical integration is when a business expands by acquiring another company that operates before or after them in the supply chain.

What is an example of horizontal growth? ›

A horizontal growth strategy would involve either consulting in a new geographic area or in a new industry. For example, let's say your current customer base is entirely made up of accounting firms. You might expand to offer your software to businesses in other industries to gain more market power.

What is an example of horizontal system? ›

An example of a horizontal market is the demand for pens across any and all industries. Pens are used in basically all industries, and so success or failure for pen producers is determined by internal decisions and factors, rather than macro events.

Is Netflix an example of horizontal integration? ›

More Horizontal Integration

Bundling Netflix with other home entertainment systems would constitute horizontal integration and strategic marketing. As home entertainment becomes more and more all-inclusive, Netflix needs to ensure that it is available on all these platforms.

What is a definition for horizontal? ›

ˌhär- : of or relating to the apparent junction of earth and sky : situated near the horizon. : parallel to, in the plane of, or operating in a plane parallel to the horizon or to a baseline : level. horizontal distance. a horizontal engine.

Is Coca Cola a horizontal integration? ›

Horizontal Integration Example : Coca-Cola Acquiring Juice Brands. As part of their Horizontal Integration strategy, Coca-Cola acquired del Valle in 2007. This was one of the main Mexican juice companies, with the objective of expanding its beverage portfolio mainly in Latin America.

What is the importance of horizontal integration? ›

Undergoing horizontal integration can benefit companies and typically takes place when they are competing in the same industry. The advantages include increasing market share, reducing competition, and creating economies of scale.

What is the example of vertical integration? ›

Vertical integration involves acquiring or developing one or more important parts of a company's production process or supply chain. For example, Netflix's shift from licensing shows and movies from major studios to producing its own original content is an example of vertical integration.

Is Facebook an example of horizontal integration? ›

When two companies that are at the same level in the production chain merge together, this is known as horizontal integration. One recent famous example of horizontal integration is Facebook's acquisition of Instagram. Both are competing social media platforms, used to share photos and updates.

Is Apple an example of horizontal integration? ›

One of the best examples of vertical integration is Apple.

What is an example of horizontal integration in healthcare? ›

Health care organizations can inte- grate horizontally or vertically. Horizontal integration occurs when two or more like providers, such as two hospitals, join forces.

What is an example of a horizontal business? ›

A business operating in a horizontal market will have consumers and purchasers across different sectors of the economy. So, a business that sells to multiple industries is in a horizontal market. The Office Supplies market, is an example of a horizontal market, as it sells to all types of industries.

Is takeover an example of horizontal integration? ›

Horizontal integration occurs when separate companies within the same or similar industry combine to become a single company. This process can occur through acquisitions, mergers and takeovers.

What is an example of a horizontal line equation? ›

Horizontal Line Equation

It is observed that the horizontal lines have the same slope, so the slope of the horizontal line is always zero. Examples of horizontal line equations are: y = 2. y = -1.

Is Amazon an example of horizontal integration? ›

Google, Facebook (and ad networks), Amazon, Netflix, Uber and Airbnb are all examples of this kind of horizontal integration. Platforms, aggregators or simply networks of this size and capabilities just weren't possible before the advent of the internet.

Is Mcdonald's an example of vertical integration? ›

Effective Vertical Integration

McDonalds is integrated in every stage of the supply chain through partnerships with contracted suppliers. This means that the fast-food chain processes the meat themselves, grows its potatoes and transports its own materials.

Is Amazon vertical or horizontal? ›

The difference between vertical and horizontal supply chains is typified in the difference between Amazon and Alibaba, two of the largest companies in the world and transforming the way businesses think about e-commerce in the chain. Amazon is a vertical supply chain company as a direct seller of goods.

What is another term for horizontal? ›

Synonyms of horizontal

parallel to the ground She reclined the chair to a horizontal position. The line on the graph was nearly horizontal, indicating little growth over the fiscal year. Synonyms & Similar Words. Relevance. flat.

What is another name for the horizontal? ›

What is another word for horizontal?
levelparallel
flushstraight
flatsupine
accumbentaligned
recumbentregular
23 more rows

How do you define horizontal and vertical? ›

Horizontal line is a straight line that is mapped from left to right, whereas the vertical is a straight line that is mapped from top to bottom. In coordinate geometry, the line parallel to the x-axis is called horizontal line and the line which is parallel to the y-axis is called vertical line.

Is Toyota vertical or horizontal integration? ›

Vertical keiretsus are a group of companies within the horizontal keiretsu. Automobile giant Toyota is one such company.

Is Nike horizontal integration? ›

All of Nike's products use the same resources and distribution channels. Nike uses vertical integration during the supply chain process when handling with producers, retailers, and providers (Soni, Phalguni).

Is Tesla horizontal integration? ›

Tesla, a pioneering force in the shift, offers a vertically integrated product that is mostly manufactured in-house — reducing supply chain needs or dependence on hardware and software from other companies.

How did horizontal integration work? ›

Horizontal integration involves buying competitor companies within the same industry that are similar in size. Buying out the competition not only creates a larger company or conglomerate, but creates economies of scale, increases market power among suppliers and distributors, and opens up new markets for the company.

What are the two ways in doing horizontal integration? ›

Horizontal integration, also called lateral integration, is a strategy in which a firm acquires similar firms to increase its market share and profits. There are two main types of horizontal integration: acquisition and consolidation. Acquisition is when a company buys out another company entirely.

Is Netflix horizontal or vertical integration? ›

Today, Netflix uses its distribution model to promote its original content alongside programming licensed from studios. 2 Instead of simply relying on the content of others, Netflix performed vertical integration to become more engaged in the entertainment development process earlier.

Who used horizontal integration? ›

Answer and Explanation: Horizontal integration was perhaps most aggressively used by Andrew Carnegie during the Gilded Age of American history. Carnegie is often remembered as America's greatest businessman, and was one of the wealthiest persons in history.

What vertical integration means? ›

vertical integration, form of business organization in which all stages of production of a good, from the acquisition of raw materials to the retailing of the final product, are controlled by one company.

Is Microsoft horizontal integration? ›

Examples of horizontal integration as an expansion strategy include the Microsoft – Activision Blizzard, Frontier Airlines – Spirit Airlines (merger), and Baxter – HillRom M&A deals in 2022 and 2021.

Is Coca Cola horizontal or vertical integration? ›

The vertically integrated bottlers (Coca-Cola Enterprises, Pepsi Bottling Group and Pepsi Americas) bottled Dr Pepper's products both before and after the vertical integration.

Is Facebook horizontal or vertical integration? ›

Social networking/Telecomm value chain. See above. Facebook has vertically integrated almost all the functions of a communications platform aspect of service delivery into itself.

Is Mcdonalds vertical or horizontal? ›

The organizational structure of McDonald's restaurants is vertical to help employees grow in their careers. The organizational chart is provided in Figure 1 below. According to the structure, the head of the restaurant is the restaurant manager who reports to the general manager.

What is an example of horizontal integration in travel and tourism? ›

If a tour operator buys another tour operator at the same level in the chain of distribution, this is know as horizontal integration.

What is the difference between vertical and horizontal integration in healthcare? ›

Vertical integration involves patient pathways to treat named medical conditions, connecting generalists and spe- cialists, whereas horizontal integration involves broad- based collaboration to improve overall health.

How do you use horizontal integration in a sentence? ›

Horizontal integration allows a firm to expand in size and scale. For a time, the horizontal integration of the tech industry drove the creation of new startups and billion-dollar companies.

What is an example of a horizontal team? ›

According to Org Chart, a horizontal structure has only two or three chains of command. For example, a horizontal company may include the business owner at the top of the hierarchy, followed by one layer of managers or team leaders with the rest of the company below them at the same hierarchical level.

Is Coca Cola vertically integrated? ›

Coca-Cola Company and PepsiCo were originally vertically integrated. The companies developed the products, manufactured and distributed them, and took care of marketing.

Is Apple horizontal integration? ›

Apple Inc. has employed a vertical integration strategy for decades. Its software products are placed into electronic devices and computer systems manufactured and assembled by Apple using hardware and components also manufactured by the company.

Why Facebook and Instagram is horizontal integration? ›

When two companies that are at the same level in the production chain merge together, this is known as horizontal integration. One recent famous example of horizontal integration is Facebook's acquisition of Instagram. Both are competing social media platforms, used to share photos and updates.

Is Facebook a horizontal integration? ›

No device can be made that interoperates with its network without the sanction of Facebook. When you come up one level to the telecoms value chain, Facebook is horizontally integrated, providing applications on many devices and APIs that allow messages to be delivered to and from its communication platform.

Is Mcdonald's vertically or horizontally integrated? ›

Effective Vertical Integration

McDonalds is integrated in every stage of the supply chain through partnerships with contracted suppliers. This means that the fast-food chain processes the meat themselves, grows its potatoes and transports its own materials.

Is Amazon a horizontal integration? ›

Amazon has pioneered a dual strategy of both horizontal and vertical integration. The next Amazon will need a different approach. Amazon is many things to many people, just like a classical physical warehouse. But Amazon is more than that, due to its peculiar, dual strategy of both horizontal and vertical integration.

Is Google a vertical integration? ›

Indeed, there is a key distinction to make between Meta and other tech giants like Google or Apple. Where Google and Apple have built vertical integration, thanks to the control over a whole ecosystem.

Who is horizontal integration used by? ›

Who Uses Horizontal Integration? Companies that seek to strengthen their positions in the market and enhance their production or distribution stage use horizontal integration.

What are the benefits of horizontal integration? ›

Undergoing horizontal integration can benefit companies and typically takes place when they are competing in the same industry. The advantages include increasing market share, reducing competition, and creating economies of scale.

Is Facebook horizontal or vertical? ›

This is because users hold their phones upright 94% of the time. So, in order to engage the maximum audience, it is best to upload a vertical Facebook video. Since Facebook supports vertical videos, it becomes super easy to attract users' attention.

Is Instagram vertical or horizontal? ›

Instagram feed post dimensions

Instagram supports three types of feed posts: square, landscape, and portrait. These are the recommended image sizes and aspect ratios for each: Square: 1080 x 1080 px (1:1) Landscape/horizontal: 1080 x 566 px (16:9)

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