Horizontal Integration What Is It, Examples & Advantages

This is because horizontal integration examples in media refer to a company increasing its production, whether of goods or of services. To truly fall into this category, this increased production must occur in the same part of the supply chain. Horizontal integration can involve mergers and acquisitions or it may refer to a company that has grown via internal expansion. Horizontal integration presents a powerful tool for companies seeking strategic growth.

Horizontal integrations are more effective when the target company’s management team is willing to negotiate or can see merit in the deal. This leads to more productive conversations, increased buy-in, and fewer chances for the buyer to overpay to force the transaction through. A merger occurs when two or more companies of equal size join to create a new organization. An often-cited example is the 1998 $80 billion merger of oil giants Exxon and Mobil. With the sum of its components, the resulting company, Exxon-Mobil, gained and still has immense market power.

Bigger Base of Customers

1. Horizontal integration presents a powerful tool for companies seeking strategic growth.
2. Like any merger, horizontal integration does not always yield the synergies and added value that was expected.
3. By merging the two companies into one, the new organization now has access to a larger base of customers.
4. The trend these days, however, is to achieve this by buying or fusing with other companies.
5. Facebook’s horizontal integration of Instagram was truly historic with a return of 100% in just over six years.

Horizontal acquisitions take place between similar companies that are in the same stage of production. They allow companies to gain market share, expand their product lines, and eliminate the competition. But these deals can often take time to go through because regulators don’t want producers to have so much power that harms consumers. 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. Horizontal integration is a corporate strategy in which companies operating at the same level within a supply chain join forces.

Examples of horizontal integration

The other two forces, the power of suppliers and of customers, drive vertical integration. Merger is the joining of two similar sizes, independent companies to make one joint entity. Hostile takeover is the acquisition of the company, which does not want to be acquired. The social media industry has thousands of applications and posting capabilities, but Instagram was a true competitor with Facebook for younger markets and for ad space. In the merger, Facebook strengthened its social media position and removed the competition from Instagram.

Horizontal Integration Example : Facebook Acquiring Instagram

Here are three textbook examples of horizontal integration undertaken by companies that sought to strengthen their positions in the market and enhance their production or distribution stage. At its core, horizontal integration is the term used to describe the merger of two or more corporations that operate in the same areas of production. In layman’s terms, it means that a company has bought out and absorbed another that is a direct competitor. One of the major problems with horizontal integration is that it can result in a monopoly if done in a way that won’t allow for competition. However, many companies have been saved through horizontal integration and rolled into a larger, more successful company.

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. But such a strategy may sometimes create a monopoly in case the new entity is successful in capturing a large part of the market. The key to successful horizontal integration is the ability to synergize the operations of the merging companies. This often results in economies of scale, where production costs per unit decrease as output increases, making it a potent growth and internal expansion strategy.

In March 2015, Kraft acquired Heinz to become the Kraft Heinz Corporation (KHC). One of the first things that KHC did was to make cuts in any existing redundancies in an effort to boost profits.

Horizontal integration takes place when two companies that compete in the same industry at the same stage of production merge. Disney (DIS) faced stagnation in the market and was rejuvenated after the purchase of Pixar. The two companies operated in the same space (animation) and were able to merge their technology, thereby increasing market share and profitability. Among the benefits are an increase in market share, reduced competition, and increases in other synergies.

As stated above, M&A teams will seek this kind of deal if there are economies of scale, as the increased production must lead to significant cost advantages across the value chain. The first, backward integration, occurs when a company purchases a business that produces an input product for the acquiring company’s product–a fast fashion clothing distributor acquiring a fabric manufacturer. Forward integration involves a company taking control of some aspect of the post-production process–the distributor acquiring a retailer to sell the clothing it produces. 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.

Such kind of integration may result in monopoly power among the integrated companies if they are able to grab a vast market share. Horizontal integrations are more likely if one sector is outside the examples of horizontal integration regulator’s focus. For example, the 2023 merger of Elance and O Desk was far removed from any regulator’s scope or attention, though it created a giant in the online freelancing industry.

The integration also facilitated cost synergies by streamlining the production process and distribution channels, reducing production costs, and enabling more revenue generation from a broader array of content. Horizontal integration refers to a business that expands by purchasing a similar company in its industry at a supply chain similar point. At the same time, vertical integration refers to if a business grows by buying another company working before or after them in the supply chain. The merged entity could service a larger customer base with relatively lower assets and combined resources.