What are the benefits of horizontal and vertical integration?
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Conversely, Vertical Integration is used to rule over the entire industry by covering the supply chain. It implies the integration of various entities engaged in different stages of the distribution chain. So, take a read of the given article to get a better understanding of the differences between Horizontal and Vertical Integration.
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Definition of Horizontal IntegrationThe merger of two or more firms, which are engaged in the same line of business and their activity level is also same; then this is known as Horizontal Integration. The product may include complementary product, by-product or any other related product, competitive product or entering into the product’s repairs, services, and maintenance section. Horizontal Integration reduces competition between firms in the market, as if the producers of the product get combined they can create a monopoly. However, it can also create an oligopoly if there are still some independent manufacturers in the market. It is a tactic used by most of the companies to expand its size and achieve economies of scale due to increased production level. This will help the company to approach new customers and market. Moreover, the company can also diversify its products and services. One of the examples of horizontal integration is the acquisition of Instagram by Facebook and Burger King by McDonald’s. Definition of Vertical IntegrationVertical Integration is between two firms that are carrying on business for the same product but at different levels of the production process. The firm opts to continue the business, on the same product line as it was done before integration. It is an expansion strategy used to gain control over the entire industry. There are two forms of vertical integration, as described below: Forms of vertical integration
Apple is the best example of vertical integration; it is the biggest and a renowned manufacturer of smartphones, laptops and so on. It controls the whole production and distribution process itself, from the beginning to the end. Another example of this is Alibaba, a Chinese e-commerce company, that owns the entire system of payment, delivery, search engine and much more. Key Differences Between Horizontal and Vertical IntegrationThe following are the major differences between horizontal and vertical integration:
Video: Horizontal Vs Vertical IntegrationExampleDiagrammatic Representation of Horizontal and Vertical Integration Horizontal Integration Integration of Exxon and Mobil, oil companies to increase market dominance is an example of Horizontal Integration. Vertical Integration Firms like Mafatlal, National Textile Corporation, etc have opened up retails stores owned by them, in order to have an effective control over distribution activities. ConclusionIntegration strategy is used by the firms to increase market share, become more diversified, eliminating the cost of developing new product and introducing it to the market, minimizing competition by taking over competitor’s business, etc. What are the benefits of horizontal integration?Undergoing horizontal integration can benefit companies and typically takes place when they are competing in the same industry. The advantages include increasing market share, reducing competition, and creating economies of scale.
What are the benefits of vertical integration?Vertical integration requires a company's direct ownership of suppliers, distributors, or retail locations to obtain greater control of its supply chain. The advantages can include greater efficiencies, reduced costs, and more control along the manufacturing or distribution process.
What are the benefits and risks of vertical integration?Advantages of vertical integration include resilience to supply chain disruptions, market power, and economies of scale. Drawbacks of vertical integration include high costs, less flexibility, and loss of focus.
Which is more successful horizontal or vertical integration?Production scale
A company can increase its production scale through horizontal integration due to the increased workforce and resources that come with merging companies. However, with vertical integration, it may be harder for a company to expand its workforce due to increased costs across the entire supply chain.
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