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However, they may be in the same or different industries. As with any process, some disadvantages must be considered along with the benefits. On the other end of the spectrum, conglomerate diversification is for companies that strive for growth. The merger went through an exhaustive review by the FTC to check for the formation of a Monopoly in the petroleum industry. Utilizing these kind of opportunities can come with great benefits. Accessed August 25, 2020. Horizontal integration is a competitive strategy whereby business entities operating at the value chain Value Chain A value chain is all the activities and processes within a company that help add value to the final product. Horizontal integration may also involve the mutualization of activities or the consolidation of strategic business activities within the firm’s scope of processes and activities. The horizontal integration of companies within the same industry attracts businesses that target to reach a wider market or offer more products/services. Both the companies had a nominal market share with some pricing power over the customers. Horizontal integration can lead to a monopoly which is discouraging for many governments due to the lack of competition from other organizations, Reduced flexibility. Toolshero supports people worldwide (10+ million visitors from 100+ countries) to empower themselves through an easily accessible and high-quality learning platform for personal and professional development. Backward integration is a type of vertical integration that includes the purchase of, or merger with, suppliers. It may arise from expansion to new market segments, economies of scale, economies of scopeEconomies of ScopeEconomies of scope is an economic concept that refers to the decrease in the total cost of production when a range of products are produced together rather than separately. a greater market share. Accessed Sept. 8, 2020. Benefits of horizontal integration to both the firm and society may include economies of scale and economies of scope. Is it viable to use this business strategy to expand the products and services of the company? By closing this banner, scrolling this page, clicking a link or continuing to browse otherwise, you agree to our Privacy Policy, Black Friday Offer - Investment Banking Training (117 Courses, 25+ Projects) View More, Investment Banking Training (117 Courses, 25+ Projects), 117 Courses | 25+ Projects | 600+ Hours | Full Lifetime Access | Certificate of Completion, has been a guide to Horizontal Integration and its definition. In many cases, companies adapt this strategy for either one of the two reasons below: Horizontal Integration can be beneficial for companies that want to cover different markets. If you liked this article, then please subscribe to our Free Newsletter for the latest posts on models and methods. Undergoing horizontal integration can benefit companies and typically takes place when they are competing in the same industry. Necessary cookies are absolutely essential for the website to function properly. Post-merger, the resulting firm was producing 10% of the world’s total steel. In this way, Coca-Cola was able to cover other fronts by taking over the manufacture of substitute products such as energy drinks in the first instance as occurred with the launch of Powerade and juices. Stunting economic growth of the new enterprise. In vertical integration, a business entity acquires another business operating in the same production line. However, after detailed talks, Mittal improved its bid and, looking at the perceived synergies that the new entity would offer, paid 40.37 Euros to Arcelor shareholders to buy them out. Horizontal integration is often driven by marketing imperatives. These are three of the five competitive forces that shape every industry and which are identified in Porter’s Five Forces model. P&G REAFFIRMS GILLETTE ACQUISITION FINANCIAL IMPACTS, AstraZeneca strengthens Cardiovascular and Metabolic disease portfolio with acquisition of ZS Pharma, Marriott International Announces Vision For Sheraton Transformation. These companies are usually competitors and merge to gain higher market power and economies of scale. Using these three companies, GAP Inc. has been very successful in controlling a large segment of retailing in the textile sector. These include (but are not limited to) an increase of market power or market share, reduced competition, and increases in other synergies. LN Mittal became the president of the new entity and owns the majority stake. Investopedia uses cookies to provide you with a great user experience. As a result, the new firm has access to a large customer segment.

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