Horizontal Integration

Horizontal Integration is a type of ownership and control. It is a strategy used by a business or corporation that seeks to sell a type of product in numerous markets. Horizontal integration in marketing is much more common than vertical integration is in production. Horizontal integration occurs when a firm is being taken over by, or merged with, another firm which is in the same industry and in the same stage of production as the merged firm, e.g. a car manufacturer merging with another car manufacturer. In this case both the companies are in the same stage of production and also in the same industry. This process is also known as a "buy out" or "take-over". The goal of Horizontal integration is to consolidate like companies and monopolize an industry. The acquisition of additional business activities at the same level of the value chain is known as horizontal integration. This form of expansion contrasts with vertical integration by which the company expands into upstream and downstream activities. It can be achieved by internal or external expansion through mergers and acquisitions of firms offering similar products and services. A firm may diversify by growing horizontally into unrelated businesses. The example of this can be taken as one of the leading companies likeThe Gap, Inc. is an American clothing and accessories retailer based in San Francisco, California, and founded in 1969 by Donald G. Fisher and Doris F. Fisher. The company has five primary brands: the namesake Gap banner, Banana Republic, Old Navy, Piperlime and Athleta. Gap, Inc. remains the largest specialty apparel retailer in the U.S. The GAP Inc. retail clothing corporation practices the horizontal integration. GAP Inc. controls three distinct companies, Banana Republic, Old Navy, and the GAP brand itself. Each company has stores that market clothes tailored to appeal the needs of a different group. The GAP sells priced clothes that appeal to middle-aged men and women, and Old Navy sells inexpensive clothes geared towards children and teenagers. By using these three different companies, GAP Inc. has been very successful at controlling a large segment of the retail clothing industry. Finance industry experienced much horizontal integration, with numerous mergers between companies in the retail banking, investment and insurance industries.

Advantages of Horizontal Integration

Economies of scales by selling more of the same product, for example by geographic expansion Economies of scope by sharing resources common to different product. Synergies created Increase market power Reduction in the cost of international trade by operating factories in foreign markets Reduction in competition Fulfilling customer expectations Increase negotiation power with more leverage power over consumer and suppliers

Disadvantages of Horizontal Integration

Synergies maybe more imaginary than real. Substitutes market is often very different. Challenge occurs to management during acquisition. Reduction in competition may lead to anti-trust issues.

Example for both horizontal and vertical integration can be taken asAT&T is one of todays largest industry for voice, video and data communication companies in the world. It is the market leader in local, long distance and internet services. AT&T is one of the few examples that are both horizontal and vertical integrated. It is said to be horizontally integrated because it has a wide range investments in companies, like General electric, Radio Corporation of America. All these companies helped AT&T get closer and closer to be a global market dominate. Its ambition of monopolizing the market has appeared as early as around the time when radio was a new medium. In addition, AT&T is vertically integrated as well, since it also has ownership over companies that transmit equipments which tremendously helped AT&T in providing one stop services and products.