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The Walt Disney Company was established in 1923 as an animation studio that later forayed into live-action film production, television and theme parks. After a slew of successful ventures till the early 21st century, it began to experience a stage of stagnation and was looking at ways to reinvent itself. The acquisition did not involve the merger of names but the Walt Disney studious was made a subsidiary of Walt Disney Company. Another notable example of a horizontal integration was Disney’s $7.4 billion acquisition of Pixar in 2006. Post Vodafone — Idea merger, the company operated as a single entity.

horizontal integration examples

Maybe the company wants to increase the market share, or it wants to increase product diversification. It is also possible that the company wants to avoid a price war by reducing competition. Company may want to achieve economies of scale by acquiring another manufacturing facility and supply chain.

Vertical Integration example

For example – The Indian telecom sector has witnessed severe consolidation in the last 5 years all credited to the entry of cash-rich Jio telecom. Two players “Vodafone India Limited” and “Idea Cellular” choose to merge and formed “Vodafone Idea” aka ‘Vi’. The combined entities may choose to operate in the existing geographical market or move into new territories.

Initially, the company streamed content provided by other production houses. By launching “Netflix Originals” in 2013, Netflix took charge of the content platform thus exhibiting the strategy of vertical integration. However, these business combinations may create a monopoly power in an industry, which may be a disadvantage to the consumer. The reduced competition may induce collusive behavior, leading to increased prices for products. Vodafone is the UK’s telecom company and Hutchison is based in Hong Kong.

When many firms pursue this strategy in the same industry, it leads to industry consolidation . Horizontal Integration is an approach wherein companies within the same industry come together via a merger or acquisition. Companies may choose to undergo vertical integration to increase profitability, reduce production costs, and strengthen their supply chain. Integrating vertically requires one company that is higher or below in the supply chain process. They can draw several benefits from vertical integration, including increased profits from the new business operations, efficiency in the production process, and enhanced distribution and delivery.

Horizontal Integration as a production strategy

When two companies come together, they also bring different consumer bases. On the other end of the spectrum, conglomerate diversification is for companies that strive for growth. Notwithstanding this rule, some companies may use only the selected competencies of horizontal integration. Sometimes horizontal integration doesn’t give you the required positive result whatever you’re expecting. When two giants companies combined, they become too big and inflexible to handle. It’s because they involve so many operations going on at various points, office culture, and leadership styles of different organizations are different.

  • It may not be possible that positive synergies always yield from the integration and value addition as per expectation.
  • Horizontal integration is another competitive strategy that companies use.
  • The cost involved in manufacturing and distribution would be considerably lowered since the new entity will have common partners.

An acquisition happens when a firm buys either all shares or most of the shares of another firm in order to have control of that firm. An acquisition takes place once the buying firm obtains or purchases over 50% ownership of another firm. The acquisition is considered as a common horizontal strategy that businesses adopt and may happen with the approval or permission of ncdex spot quotes the target firm. Industry concentration may rise due to the increased market share of the company that acquires a competitor firm. A Horizontal integration strategy is adopted by companies to fortify their space in the industry. An organization that uses this strategy generally acquires or mergers other organization that is indulged in a similar stage of production.

Lower Competition

When merged through horizontal integration, companies that used to compete can cut back on any products that are not performing well in the consumer market and focus on their strongest performers. The deal in any horizontal integration involves investment in the excess of billions of dollars. If the combined entity fails to achieve its pre-set vision, then the value of the overall deal will decline. This may hamper the brand image of the individual companies involved and also have a dent in the margins of the companies. The merger between two companies also entails synergy on internal operations. The new entity may get to combine internal departments such as marketing, finance, human resources, etc.

  • Horizontal integration is a process when one company acquires another company that is operating in the same industry and supply chain.
  • As a company grows bigger with horizontal integration, it might become too rigid, and its procedures and practices may become unfriendly to change.
  • As with any other business strategy, horizontal integration does not always lead to increased value and profitability as expected.

Apart from Horizontal Integration, there is also Vertical Integration. Vertical Integration is the opposite from Horizontal Integration, and it models the style of ownership and control. The company Apple is an example of this since it took advantage of its intelligence in the manufacture of telephone products to open up new markets such as tablets.

A) Horizontal Mergers

They are combinations with companies that are upstream or downstream of the same product supply chain. If the management implements the horizontal integration strategy efficiently, then it would amplify the customer market share. It’s because both companies are sharing their resources, market share, and product lines. It’s the customers that have to pay the price if a company permanently eliminates the competitors. If a small number of companies merge and share their market shares, it would result in the form of oligopoly. If one company dominates the market, it would result in the form of a monopoly.

  • Notwithstanding this rule, some companies may use only the selected competencies of horizontal integration.
  • A firm is said to possess ownership of the target firm once it purchases either all or most of the shares of that target firm.
  • Just as you might expect, profits have a tendency to increase when firms increase the number and type of customers they serve.

As a whole, it increased its market share in the industry and gained access to a new audience. The prime intention of adaptation of the horizontal integration strategy by a company is to gain more market share in the industry and expand to new market space. Mobil and Exxon were the leading oil companies in the United States. These two companies once controlled approximately 90% of American oil production. Both companies merged in 1998 to achieve cost savings synergies as Exxon Mobil Corp.

In 2016, Marriott International acquired Starwood Hotels & Resorts Worldwide acquisition for $13 billion. The deal brought together iconic hospitality brands such as Marriott, Courtyard, Ritz Carlton, Sheraton, Westin, W, and St. Regis properties. The integration brought 30 hotel brands under the Marriott umbrella. Thus catapulting Marriott to become the largest hotel chain in the world with more than 5,800 properties and 1.1 million rooms across 110 countries. The best example of horizontal integration was in 2014, Facebook acquired WhatsApp for $19 billion. The rationale of the acquisition can be attributed to the fact that WhatsApp was gaining traction and eventually leading to outpacing Facebook.

Business Scalability: Essential For Every Organization

The deal also catapulted Exxon Mobil Corp to become the third-largest company in the world based on market capitalization. The most tangible benefit of horizontal integration is the increase in market share. The integration ensures that the entities involved witnessing a major spike in market share which can be attributed to the amalgamation. The increase in market share catapults the entity into the big league.

The advertisement revenue from Instagram also increased and so the value of the parent company. Instagram was becoming a competitor to Facebook in the social media space with its increase in popularity. The expansion can be done in the same market or in different markets depending upon the company.

Types of vertical integration strategies

The proposed merger kicked off by Walt Disney was a prime example of horizontal integration working in the same industry. Economies of scale give expense-playing point to the companies through extension of their product yield. The point when products are prepared in bigger amounts, the normal expense for every unit decreases; in this manner we expand the productivity of the company. Incorporating evenly furnishes the companies with more extensive access to diverse unreached markets, bringing about an increment sought after of their product.