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Horizontal integration

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Title: Horizontal integration  
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Horizontal integration

A diagram illustrating horizontal integration and contrasting it with vertical integration.

In business, horizontal integration is a strategy where a company creates or acquires production units for outputs which are alike - either complementary or competitive. One example would be when a company acquires competitors in the same industry doing the same stage of production for the creation of a monopoly.[1] Another example is the management of a group of products which are alike, yet at different price points, complexities, and qualities. This strategy may reduce competition and increase market share by using economies of scale. For example, a car manufacturer acquiring its competitor who does exactly the same thing.

Horizontal integration is orthogonal to vertical integration, where companies integrate multiple stages of production of a small number of production units.

Horizontal integration is related to horizontal alliances (= horizontal cooperation). However, in the case of a horizontal alliance, the partnering companies set up a contract, but remain independent. For example, Raue & Wieland (2015) describe the example of legally independent logistics service providers who cooperate.[2] Such an alliance relates to coopetition.

Contents

  • Benefits of horizontal integration 1
  • Media terms 2
  • Examples 3
  • References 4
  • See also 5

Benefits of horizontal integration

Benefits of horizontal integration to both the firm and society may include economies of scale and economies of scope. For the firm, horizontal integration may provide a strengthened presence in the reference market. It may also allow the horizontally integrated firm to engage in monopoly pricing, which is disadvantageous to society as a whole and which may cause regulators to ban or constrain horizontal integration.

Media terms

Media critics, such as Robert W. McChesney, have noted that the current trend within the entertainment industry has been toward the increased concentration of media ownership into the hands of a smaller number of transmedia and transnational conglomerates.[3] Media is seen to amass in centre where wealthy individuals have the ability to purchase such ventures (e.g. Rupert Murdoch).

Horizontal integration, that is the consolidation of holdings across multiple industries, has displaced the old vertical integration of the Hollywood studios. The idea of owning many media outlets, which run almost the same content, is considered to be very productive, since it requires only minor changes of format and information to use in multiple media forms. For example, within a conglomerate, the content used in broadcasting television would be used in broadcasting radio as well, or the content used in hard copy of the newspaper would also be used in online newspaper website.

What emerged are new strategies of content development and distribution designed to increase the “synergy’ between the different divisions of the same company. Studios seek content that can move fluidly across media channels.[4]

Examples

An example of horizontal integration would be McDonalds buying out Burger King. Obviously, this has not happened, but is an example of what a horizontal integration would be like. Another example that actually did happen was the Heinz and Kraft Foods merger. On March 25th, 2015, Heinz and Kraft merged into one company. [5]

References

  1. ^ http://www.businessdictionary.com/definition/horizontal-integration.html
  2. ^ Raue, J.S. & Wieland, A. (2015), The interplay of different types of governance in horizontal cooperations: a view on logistics service providers. The International Journal of Logistics Management, Vol. 26, No. 2.
  3. ^ Thorburn, David and Jenkins, Henry (eds)(2002) Rethinking Media Change, MIT Press, Cambridge, Massachusetts, pp.283.
  4. ^ Thorburn, David and Jenkins, Henry (eds)(2003) Rethinking Media Change, MIT Press, Cambridge, Massachusetts, pp.284.
  5. ^ http://www.nytimes.com/2015/03/26/business/dealbook/kraft-and-heinz-to-merge.html?_r=0

See also

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