Horizontal Integration

Horizontal Integration is a Strategy that consists in Expanding the Market Share of a Company.

• Increasing the presence of a Company in a particular Sector.

 

It is called Horizontal because this Expansion is carried out in the same Market to which a Company belongs.

• Without expanding to Supplier or Customer Markets (tend to be different Markets).

 

To do so, this Strategy proposes to Cannibalize Competitors and other Companies .

There are multiple ways in which a Company can expand its presence in a Market through Horizontal Integration.

However, we could summarize them in 3:

 

Partnership: Collaborating with another Company to tackle the Market together.

• With a common Product, Promotion, Sales Strategy, etc.

 

Merger: When Two different companies in the same Market become One.

• Useful to save Money and “Fights” between them.

 

Acquisition: When a Company buys Another within the same Market.

• Similar to the Merger but one Company Dominates the other.

 

 

As you may already know, Horizontal Integrations are quite common.

• This is because it is a Relatively Easy and Immediate way to increase a Company’s Presence in a Market.

 

But … Are all Advantages with this strategy?

 

Let’s analyze the Pros and Cons of this Strategy:

Advantages of Horizontal Integration

 

It Increases Revenue immediately.

• The effects of this Strategy are generally, immediate.

 

It can Create Synergies between two or more Companies.

• Taking Advantage of the Experience of each Business.

 

It can be Easy to Develop.

• Sometimes, buying a Competitor can be the easiest way to Grow.

 

It can be a Low Risk Strategy.

• If Designed Correctly, it can be Easily Reversed.

 

Disadvantages of Horizontal Integration

 

It can Damage the Brand of the most Prestigious Company.

• One company will always have a better Reputation than the other.

 

If not Developed Properly, it can be an Expensive Strategy.

• When Buying or Merging with a Competitor, there is always a Price involved.

This is Why Companies tend to Explore Horizontal Integrations when thinking of expanding their Business.

• Because it is Immediate and Relatively Easy to do.

 

Now, before we see some examples we want to clarify one thing:

• The difference between Horizontal and Vertical Integration.

 

We are sure that you have also heard of Vertical Integration and may not know the difference.

 

Although these two strategies have a similar name, they are very different from each other.

 

Vertical Integration consists in Cannibalizing Suppliers and / or Clients.

• While Horizontal Integration Focuses on other Companies within the same Market.

 

Vertical Integration can be:

• Forward: Focusing on the Clients.
• Backward: Focusing on the Suppliers.

 

Its Goal is to Earn the Profits of Suppliers / Clients and be more Efficient.

• Visit our “Vertical Integration” Page if you are more interested about it.

The best way to understand the Horizontal Integration Strategy and How to design it correctly is by sharing some examples with you:

We have chosen 4 Examples of Companies that have developed Horizontal Integrations Successfully.

 

Let’s begin:

 

Disney has bought dozens of Film Studios to Expand its Presence in this Industry:

• Marvel.
• LucasFilm (Star Wars).
• Pixar.
• Fox (Simpson, Family Guy, etc).
• etc.

They all are owned by Disney.

 

 

Over the years, Disney has greatly increased its Presence in the Market, thanks to this Strategy.

 

In recent years, Amazon has tried to expand its Retail activity to the Fresh food Market.

 

What did Amazon do?

• It Bought Whole Foods.

 

 

With this move, Amazon saved a lot of time and effort, and took advantage of Whole Foods’ expertise in Fresh Food products.

• For the purpose of this example, we consider both Companies to be in the same “Retail Market”.

 

When Google became the King of the Internet, Websites monopolized the Net.

 

However, the years passed and a New Format appeared: Video Streaming.

• People started to consume more and more Video Content.

 

What did Google do?

• Buy YouTube… Quickly.

 

 

With this Smart move, Google bought YouTube for just $1.65 billion.

• Nowadays, it would be worth much, much more.

 

Today Google controls the entire Internet Market.

 

You have surely heard of Louis Vuitton as a Brand.

 

But… Did you know that it is the largest luxury Conglomerate in the World?

• By far.

 

How could they do it?

• By Buying every Luxury Company they could.
  • That met their quality standards, of course.

 

 

LVMH (the Conglomerate Company) owns:

• Moët Hennessy.
• Christian Dior.
• Givenchy.
• Bulgari.
• etc.

 

It is one of the Companies that best exemplifies the Horizontal Integration Strategy.

Horizontal Integration is a Strategy that consists in Expanding the Market Share of a Company.

• This Expansion is carried out in the same Market to which a Company belongs.

 

To do so, this Strategy proposes to Cannibalize Competitors and other Companies .

 

Most common Horizontal Integrations:

• Partnership: Collaborating with another Company to tackle the Market together.
• Merger: When Two different companies in the same Market become One.
• Acquisition: When a Company buys Another within the same Market.

 

Advantages of Horizontal Integration:

• It Increases Revenue immediately.
• It can Create Synergies between two or more Companies.
• It can be Easy to Develop.
• It can be a Low Risk Strategy.

 

Disadvantages of Horizontal Integration:

• It can Damage the Brand of the most Prestigious Company.
• If not Developed Properly, it can be an Expensive Strategy.