What was vertical and horizontal integration

Three examples of vertical integration are Google's acquisition of the smartphone producer Motorola in , IKEA's purchase of forests in Romania to supply its own raw materials in , and Netflix's foray into creating its own original content that it would distribute through its streaming service.

In , Google acquired Motorola Mobility. Motorola created the first cell phone and had invested in Android technology that was valuable for Google.

It was the first effort the company had made at managing its own forest operations. IKEA purchased the forest in order to manage wood sustainably at affordable prices.

Netflix is one of the most significant examples of vertical integration in the entertainment industry. Prior to starting its own content studio, Netflix was at the end of the supply chain because it distributed films and television shows created by other content creators.

However, Netflix leaders realized they could generate greater revenue by creating their own original content. In , the company expanded its original content offerings.

Horizontal integration is an expansion strategy adopted by a company that involves the acquisition of another company in the same business line. Vertical integration refers to an expansion strategy where one company takes control over one or more stages in the production or distribution of a product.

Both of these strategies are undertaken by a company in order to consolidate its position among competitors. Horizontal integration is one of the most common types of mergers. As a result of horizontal integration, competitors in the same market combine their operations and assets. An example of horizontal integration would be if two consulting firms merge. One of the firms offers software development services in the defense industry; the other firm also provides software development but in the oil and gas industry.

Companies that seek to strengthen their positions in the market and enhance their production or distribution stage use horizontal integration. Horizontal integration can greatly benefit companies. It is important because it can grow the company in size, increase product differentiation, achieve economies of scale, reduce competition, or help the company access new markets. While horizontal integration and vertical integration are both ways that companies can expand their operations, there are important differences between the two strategies.

Horizontal integration is the process of acquiring or merging with competitors, while vertical integration occurs when a firm expands into another production stage rather than merging or acquiring the company in the same production stage. A-B InBev. The Walt Disney Company. Ikea Group. Accessed Dec.

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Your Money. Personal Finance. Your Practice. Popular Courses. Table of Contents Expand. Normally horizontal integration happens through merger with or acquisition of another company. For example, a retail store or chain may purchase another retail store or chain to expand in its existing market. As with vertical integration, a horizontal integration strategy should align with the company's strategic goals or objectives.

This strategy may be appropriate when a company wishes to:. This strategy can be difficult to execute, as operating a larger organization may be demanding and can dilute core competencies. The process of integrating two companies can also be very difficult.

It requires a combination of physical, human, and technological resources. Finally, the ability to control a single stage of the value stage may be limited by antitrust law. Acquisition of or merger between major competitors may create a monopoly and result in a lack of competition in the market.

See our lecture on antitrust law and monopolies for more information on this topic. Written by Jason Gordon Updated at September 23rd, Contact Us If you still have questions or prefer to get help directly from an agent, please submit a request.

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Trends and Insights Planning for Growth. Summary Horizontal and vertical integration are the two ways businesses can expand. Horizontal Integration It is very common for companies to grow by taking customers from their competition. Vertical Integration Other businesses choose to expand by acquiring a company that occupies a critical place in their supply chain process. How have you grown your company through horizontal and vertical integration? Photo: Getty Images. This article has been a guide to horizontal integration vs.

Here we discuss the top differences between horizontal and vertical integration along with infographics and a comparison table.

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Differences Between Horizontal and Vertical Integration Horizontal integration refers to the expansion strategy adopted by the corporations which involves acquisition of one company by another company where both the companies are in the same business line and at same value chain supply level, whereas, Vertical integration refers to the expansion strategy adopted by the corporations where one company acquire another company who is at the different level, usually at the lower level of its value chain supply process.