Horizontal integration: Difference between revisions

From CEOpedia | Management online
(Horizontal Integration)
m (Text cleaning)
 
(8 intermediate revisions by 3 users not shown)
Line 1: Line 1:
'''Horizontal Integration''' is a competitive strategy, focused on the '''acquisition or merger of companies''', which can be adopted by organisations that operate in the same industry or that develop identical products/services (Millenaar 2016). In this way, companies take advantage of the possibility of '''combining its assets and production processes''', in order to get new competitive advantages over its competitors and being able to operate in the market more effectively.
'''Horizontal Integration''' is a competitive [[strategy]], focused on the '''acquisition or [[merger]] of companies''', which can be adopted by organisations that operate in the same [[industry]] or that develop identical products/services (Millenaar 2016). In this way, companies '''combine its assets and [[production]] processes''', getting new competitive advantages over their competitors.


'''Acquisition''' is one of the main forms of horizontal integration adopted by companies, in which one of the parties '''acquires more than 50% of the shares''' of the other party, thus gaining full control over the decisions and operations of the latter. Consequently, the main company integrates, in its activities and management, all the relevant resources of the acquired company.
'''Acquisition''' is a strategy employed by companies with the aim of '''obtaining the majority or the entire share portfolio''' of one of the parties involved. Through this procedure, companies aim to create positive synergies that allow for greater production [[efficiency]], an increase in [[market]] share, and consequently a higher [[profit]] (Chen et al 2021).


Moreover, the companies also have the possibility of '''merging''' with other organisations and ceasing to act individually in the markets. In this way, both companies '''pool its resources''', with the main objective of creating a company with more power.
Moreover, the companies also have the possibility of '''merging''' with other organisations and ceasing to act individually in the markets. In this way, both companies '''pool its resources''', with the main objective of creating a [[company]] with more power (Kudełlo et. al 2015)..


==Implementation of Horizontal Integration==
==Implementation of horizontal integration==
For horizontal integration to be successfully implemented, it is essential that the companies involved take certain factors into consideration before making a final decision. First, it is important to conduct a '''market analysis''' in order to understand the possible partners that fit with its objectives and values. In addition, it is fundamental to select companies that have '''complementary and advantageous competences''' for the development of the business. In the next phase, after the selection of the company, it is necessary to '''establish an agreement''' where the essential aspects of the integration are defined. Finally, and already with the horizontal integration implemented, companies should '''analyse the acquired resources''', technology and know-how, managing them in order to achieve a greater presence in the market.
For horizontal integration to be successfully implemented, it is essential that companies are guided by certain aspects. First, it is important to conduct a '''market analysis''' in order to understand the possible partners that fit with its objectives and values. In addition, it is fundamental to select companies that have '''complementary and advantageous competences''' for the development of the business. In the next phase, after the selection of the company, it is necessary to '''establish an agreement''' where the essential aspects of the integration are defined. Finally, and already with the horizontal integration implemented, companies should '''analyse the acquired resources''', [[technology]] and [[know-how]], managing them in order to achieve a greater presence in the market.


==Advantages and Disadvantages of Horizontal Integration==
==Advantages and disadvantages of horizontal integration==
In order to ensure that the implementation of this type of strategy is carried out effectively, it is necessary that companies analyse in advance all the advantages and disadvantages associated with horizontal integration (Kenton 2022).
In order to ensure that the implementation of this type of strategy is carried out effectively, it is necessary that companies analyse in advance all the advantages and disadvantages associated with horizontal integration (Kenton 2022).
Relative to the '''advantages''', the company will benefit from a set of privileges:
 
* Achieve economies of scale, allowing an optimisation of the production process through the production of goods in large quantities, reducing costs per unit produced.
According to the Managerial [[Economics]] Principles (2012), the company will '''benefit''' from a set of privileges:
* Enjoy economies of scope, which allows the simultaneous production of different products at a lower cost than when producing it individually.  
* Achieve [[economies of scale]], allowing an optimisation of the production [[process]] through the production of goods in large quantities, reducing costs per unit produced.
* Enjoy [[economies of scope]], which allows the simultaneous production of different products at a lower [[cost]] than when producing it individually.
* Gain a greater market share, since it combine the percentages that each company held and, furthermore, since the number of consumers is greater, the number of sales will be greater.  
* Gain a greater market share, since it combine the percentages that each company held and, furthermore, since the number of consumers is greater, the number of sales will be greater.  
* Expand into new markets, since the merged company will eventually operate in markets where the companies marketed its products individually.
* Obtain greater negotiating power over suppliers and distributors since, as two companies become one, the [[supplier]] no longer has at his disposal several companies with which he can cooperate. Thus, the company's power of substitution is greater than that of the suppliers/distributors, which gives it greater bargaining power that benefits it.
* Obtain greater negotiating power over suppliers and distributors since, as two companies become one, the supplier no longer has at his disposal several companies with which he can cooperate. Thus, the company's power of substitution is greater than that of the suppliers/distributors, which gives it greater bargaining power that benefits it.


On the other hand, horizontal integration '''may not generate the success desired''' by the company in the following situations:
On the other hand, horizontal integration '''may not generate the success desired''' by the company in the following situations:
* In the case of an acquisition, the acquired company will have less decision-making power and control over the operationalisation of the company, since the main company is responsible for managing the entire organisation.
* In the case of an acquisition, the acquired company will have less decision-making power and control over the operationalisation of the company, since the main company is responsible for managing the entire organisation (Manning & Baines 2004).
* Possibility of conflicts of interest, if there are diametrically opposed analysis perspectives, values and/or organisational cultures.
* Possibility of conflicts of [[interest]], if there are diametrically opposed analysis perspectives, values and/or organisational cultures (Ceausescu 200).
* Decreased substitution power for consumers due to fewer companies available in the market.


==Conclusion of Horizontal Integration==
==Conclusion of horizontal integration==
In conclusion, horizontal integration allows a company to '''increase its notoriety and reputation''' in the market, leading to an '''increase in revenues''' and, consequently, '''in profits'''. However, it is important to note that this strategy may not originate an added value for the companies involved. Thus, it is necessary to carefully analyse the pros and cons associated with horizontal integration before implementing it.
In conclusion, horizontal integration allows a company to '''increase its notoriety and reputation''' in the market, leading to an '''increase in revenues''' and, consequently, '''in profits'''. However, it is important to note that this strategy may not originate an added value for the companies involved. Thus, it is necessary to carefully analyse the pros and cons associated with horizontal integration before implementing it.
{{infobox5|list1={{i5link|a=[[Importance of marketing strategy]]}} — {{i5link|a=[[Intangible asset]]}} — {{i5link|a=[[Internationalization]]}} — {{i5link|a=[[Types of strategies]]}} — {{i5link|a=[[Merger]]}} — {{i5link|a=[[Syndicate]]}} — {{i5link|a=[[Conglomerate diversification]]}} — {{i5link|a=[[Grey market]]}} — {{i5link|a=[[Monopolistic agreement]]}} }}


==References==
==References==
* Chen, N., Lin, X., Luo, R., & Shao, G. (2021). ''[https://www.semanticscholar.org/paper/Business-Acquisition-Analysis%3A-Chen-Lin/c6c53f7fa6475e7192f135baac94fed7cf118352 Business Acquisition Analysis]''. Atlantis Press, 182.
* Dumitriu, R., & Stefanescu, R. (2008). ''Analysis of the Relationship between the Romanian Exports and Imports''. Academia
* Kudełlo, J., Wirth, H., Bachowski, C., & Gacek, J. (2015). ''[https://yadda.icm.edu.pl/baztech/element/bwmeta1.element.baztech-ab22737d-575d-4f1f-8257-4a755febbe25 Horizontal integration in the development strategy of mining companies]''. Mining Science, 22.  
* Kudełlo, J., Wirth, H., Bachowski, C., & Gacek, J. (2015). ''[https://yadda.icm.edu.pl/baztech/element/bwmeta1.element.baztech-ab22737d-575d-4f1f-8257-4a755febbe25 Horizontal integration in the development strategy of mining companies]''. Mining Science, 22.  
* ''Managerial Economics Principles'' v. 1.0. (2012).
* Manning, L., & Baines, R. N. (2004). ''[https://www.emerald.com/insight/content/doi/10.1108/00070700410561414/full/pdf?title=globalisation-a-study-of-the-poultrymeat-supply-chain Globalisation: a study of the poultry-meat supply chain]''. British Food Journal, 106 (10/11).
* Millenaar, M. J., (2016). ''[https://edepot.wur.nl/374975 The Influence of Horizontal Integration on Business Performance]''. Wageningen University.
* Millenaar, M. J., (2016). ''[https://edepot.wur.nl/374975 The Influence of Horizontal Integration on Business Performance]''. Wageningen University.
* Pérez-Lara, M.,  Saucedo-Martínez, J. A., Marmolejo-Saucedo, J. A., Salais-Fierro, T. E., & Vasant, P. (2020). ''[https://link.springer.com/content/pdf/10.1007/s11276-018-1873-2.pdf Vertical and horizontal integration systems in Industry 4.0]''. Wireless Networks, 26.


{{a| Ana Inês Jorge Gonçalves, Inês Espregueira Guerra Teixeira de Morais, Marta Gomes Ribeiro}}
{{a| Ana Inês Jorge Gonçalves, Inês Espregueira Guerra Teixeira de Morais, Marta Gomes Ribeiro}}
[[Category:Strategic management]]
[[Category:Strategic management]]

Latest revision as of 23:24, 17 November 2023

Horizontal Integration is a competitive strategy, focused on the acquisition or merger of companies, which can be adopted by organisations that operate in the same industry or that develop identical products/services (Millenaar 2016). In this way, companies combine its assets and production processes, getting new competitive advantages over their competitors.

Acquisition is a strategy employed by companies with the aim of obtaining the majority or the entire share portfolio of one of the parties involved. Through this procedure, companies aim to create positive synergies that allow for greater production efficiency, an increase in market share, and consequently a higher profit (Chen et al 2021).

Moreover, the companies also have the possibility of merging with other organisations and ceasing to act individually in the markets. In this way, both companies pool its resources, with the main objective of creating a company with more power (Kudełlo et. al 2015)..

Implementation of horizontal integration

For horizontal integration to be successfully implemented, it is essential that companies are guided by certain aspects. First, it is important to conduct a market analysis in order to understand the possible partners that fit with its objectives and values. In addition, it is fundamental to select companies that have complementary and advantageous competences for the development of the business. In the next phase, after the selection of the company, it is necessary to establish an agreement where the essential aspects of the integration are defined. Finally, and already with the horizontal integration implemented, companies should analyse the acquired resources, technology and know-how, managing them in order to achieve a greater presence in the market.

Advantages and disadvantages of horizontal integration

In order to ensure that the implementation of this type of strategy is carried out effectively, it is necessary that companies analyse in advance all the advantages and disadvantages associated with horizontal integration (Kenton 2022).

According to the Managerial Economics Principles (2012), the company will benefit from a set of privileges:

  • Achieve economies of scale, allowing an optimisation of the production process through the production of goods in large quantities, reducing costs per unit produced.
  • Enjoy economies of scope, which allows the simultaneous production of different products at a lower cost than when producing it individually.
  • Gain a greater market share, since it combine the percentages that each company held and, furthermore, since the number of consumers is greater, the number of sales will be greater.
  • Obtain greater negotiating power over suppliers and distributors since, as two companies become one, the supplier no longer has at his disposal several companies with which he can cooperate. Thus, the company's power of substitution is greater than that of the suppliers/distributors, which gives it greater bargaining power that benefits it.

On the other hand, horizontal integration may not generate the success desired by the company in the following situations:

  • In the case of an acquisition, the acquired company will have less decision-making power and control over the operationalisation of the company, since the main company is responsible for managing the entire organisation (Manning & Baines 2004).
  • Possibility of conflicts of interest, if there are diametrically opposed analysis perspectives, values and/or organisational cultures (Ceausescu 200).

Conclusion of horizontal integration

In conclusion, horizontal integration allows a company to increase its notoriety and reputation in the market, leading to an increase in revenues and, consequently, in profits. However, it is important to note that this strategy may not originate an added value for the companies involved. Thus, it is necessary to carefully analyse the pros and cons associated with horizontal integration before implementing it.


Horizontal integration — recommended articles
Importance of marketing strategy — Intangible asset — Internationalization — Types of strategies — Merger — Syndicate — Conglomerate diversification — Grey market — Monopolistic agreement

References

Author: Ana Inês Jorge Gonçalves, Inês Espregueira Guerra Teixeira de Morais, Marta Gomes Ribeiro

Retrieved from "https://ceopedia.org/index.php?title=Horizontal_integration&oldid=92881"