Business development depends not only on the use of software, but also on the development of strategic planning for this development. There are quite a few ways to expand or modify your business activities, but almost all of them concern the implementation of integration between individual companies in the market. Among them, quite often there is such a concept as horizontal integration. What is it and what are the advantages of horizontal integration – we suggest you learn from our article.
What is horizontal integration?
If we omit the subtleties of the corporate vocabulary and do not overload our vocabulary with unnecessary terms, the term “horizontal integration” can be defined as one of the varieties of strategic development of the company, whose ultimate goal is the acquisition or merger with competing companies in the same industry. Simply put, it is the process of merging and expanding a company that does not extend beyond its sphere of influence and does not involve changes in product lines or production methods.
Horizontal integration is quite common in today’s business world. It can result in market stabilization and the consolidation of a single company’s position. This type of merger is often called an aggressive merger because it reduces the number of players in the market, giving more importance to some specific companies.
Horizontal integration as a method of strategic development can be used in different business sectors – from industry to retail trade. At the same time it does not particularly affect the overall performance of the industry as a whole.
Advantages of horizontal integration and the best horizontal integration examples
Despite the fact that in today’s business world there are many opponents of this strategy of development, horizontal integration has a number of indisputable advantages in comparison with other ways of developing companies. In particular, among the main advantages of horizontal integration may include:
- Increased opportunities for companies. Despite the fact that this type of merger, as a rule, does not provide for a radical change in the specifics of the company, it provides an opportunity to diversify the range of products and services, in the provision of which one or another company specializes.
- Reduction of production costs. This is perhaps the most important advantage of horizontal integration. As a result of its implementation, it is possible to reduce production costs, because the company receives additional external resources.
- Market Stabilization. Horizontal integration results in one company absorbing one or more others, resulting in new players with more opportunities. This means that the number of competing firms in the same industry is also reduced, reducing the level of competition in the marketplace.
- New opportunities for expansion. Horizontal integration gives the new firm the opportunity to expand into a new market in which the acquired firm was previously operating. Thus, it is possible to cover new markets and attract a new target audience, which can not only have a positive impact on the welfare of the company.
Despite the fact that horizontal integration provides many advantages to modern business, there is a whole group of opponents of such a development strategy. Nevertheless, many well-known representatives of the modern market resorted to this method of company development – for example, Amazon and Whole Foods, Porsche and Volkswagen, Pfizer and Pharmacia Corporation, and many others. This shows the effectiveness of horizontal integration in today’s world.