For instance, Facebook’s acquisition of WhatsApp introduced challenges in aligning corporate cultures and systems across platforms. When companies merge or acquire competitors, they often gain access to new customer bases and broaden their reach. For instance, when Disney acquired Pixar, it not only expanded its animation portfolio but also attracted Pixar’s loyal audience. Companies that acquire or merge with others in their industry can quickly grow their customer base and increase their sales. This can be especially beneficial in competitive markets where organic growth is slow or expensive. Coffee King decides to buy out Local Brew, a chain of coffee shops with a significant presence in a region where Coffee King has been struggling to grow its market share.
Differences between Horizontal Integration and Vertical Integration
The deal became one of necessity as a new entrant, Jio, took more and more market share away – eventually becoming the market leader in 2019. This squeezed profit margins in the industry and all but forced Vodafone and Idea to merge. Although horizontal integration can take place between industries, it usually occurs between two competitors – generally because it creates greater efficiencies. In turn, this can potentially result in a monopoly if the two firms are large enough.
Additionally, it allows firms to diversify product lines without investing heavily in research and development for new products. Consider Disney’s acquisition of Pixar; this strategic move not only expanded its animation portfolio but also revitalized its creative direction. An example of horizontal integration in the food industry was the Heinz and Kraft Foods examples of horizontal integration merger. On 25 March 2015, Heinz and Kraft merged into one company, with the deal valued at $46 billion.
What are the Risks of Horizontal Integration Merger Strategy?
Vertical integration occurs when a company controls multiple stages of production or distribution within the same industry. This approach allows businesses to streamline operations, reduce costs, and improve supply chain management. For example, Tesla manufactures its own batteries and electric motors while also selling vehicles directly to consumers. By controlling both production and sales channels, Tesla optimizes its processes. Companies undergoing horizontal integration may face several challenges, including cultural integration, where merging companies must blend differing corporate cultures, management styles, and operating procedures.
- As a result, horizontal integrations become a popular means of acquiring market share.
- The acquisition business was officially closed at the price of $300 million in cash and 23 million shares.
- Through internal expansion, a company simply chooses to strategically change course and apply more resources in a different way.
Disney and 21st Century Fox: A Blockbuster Example
Horizontal integration generally occurs when two companies in the same industry combine (although infrequently occurs in unrelated industries, but at the same stage of the supply chain). The companies involved in vertical integration each have their own unique role at different stages of the production process. Vertical integration offers significant advantages for businesses aiming to control their production and distribution processes. Companies can streamline operations, reduce costs, and enhance quality through this strategy.
Benefits of Horizontal Integration
Horizontal integration involves companies at the same level of the value chain within the same industry — essentially, competitors. In contrast, vertical integration involves acquiring or merging with companies at different levels of the value chain, such as suppliers or distributors. To strengthen their market presence and competitive positions, companies will execute one of three horizontal integration transactions–mergers, acquisitions, or internal expansion. The differentiation between each strategy offers distinct advantages, whether combining forces with another company, acquiring a competitor, improving corporate finances, or expanding operations from within.
Additionally, look for partners that will enhance your product differentiation, helping your brand to stand out in crowded marketplaces. When you consider merging lanes with another business, red flags raised by antitrust laws can’t be ignored. Horizontal integration has the potential to trigger alarms over unfair market control, posing risks such as creating a monopoly that dominates a market.
Horizontal Integration is also a competitive strategy that can create economies of scale, increase market power over distributors and suppliers, increase product differentiation and help enter new markets. With Vertical Integration, expansion actions are developed in new business operations in the various production and distribution processes of the company. An example of this type of company are various companies within the oil-industry. This type of company can have the control of exploration, drilling, production, transportation, refining, commercialization, distribution, etc. To achieve that goal, it’s likely they will acquire or merge with another company to become much more competitive and achieve a stronger position in the market environment. It is not surprising that major companies within each industry own a number of other brands.
United Parcel Service (UPS)
Since then, the company has moved into vertical mergers, acquiring several technology and pharmaceutical services firms, but the Albertsons deal was the biggest horizontal acquisition CVS has ever made. This business strategy doesn’t involve M&A but rather new product developments or investment in existing activities, such as geographic expansion. The South Korean appliance and consumer electronics company expanded its operations to over 200 countries to reach new markets and broaden its now global customer base.
Think about the times siren calls about monopolies and reduced competition hit the headlines post major merger announcements. For instance, the integration combined the first and second largest energy corporations in the United States, spotlighting the critical role of government oversight. Government data and regulatory scrutiny come into play here as they are essential to ensure fair practices and protect consumer interests.
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. In May 2010, United Airlines (known then as UAL Corporation) acquired Continental Airlines.
- Merging operations through horizontal integration allows companies to achieve economies of scale.
- For instance, taking the leap into market diversification, a manufacturer may merge with a retail company, ensuring they’re not just producers, but also premier marketplace contenders.
- Automation and data analytics streamline operations, making mergers more efficient.
- Horizontal integration offers several advantages that can significantly impact a company’s growth and market presence.
- This can occur through a friendly acquisition, where the target company agrees to the acquisition and its shareholders receive compensation for their shares.
The firm may then have a South America, European, Asia, and African division to contend with. So to implement a company-wide change requires significant levels of planning to implement through its various divisions. This is why we have seen many big companies fail through the years – think of Sears, Blockbuster, and Blackberry. Not only can it help the other firm to penetrate the market, but also allow it to introduce other products that it has to offer. If we look at the purchase of Instagram by Facebook again – what we see is a reduction in competition. Instagram is one of Facebook’s biggest competitors in the social media sphere.
