Meaning of Horizontal and Vertical Integration
Horizontal and Vertical Integration are two types of strategies used by businesses for expanding their activities and strengthening their overall position in market. Horizontal integration is a business expansion strategy used by companies for acquiring other companies that are in same business line or at same level of value chain in industry. Whereas, vertical integration is an expansion strategy in which a company seeks to attain complete control over production process and distribution channel of product by acquiring other companies operating at distinct stages of value chain.
These strategies are chosen as per the needs and objectives of organization as horizontal integration assist in expanding business size whereas vertical integration leads to strengthen the supply chain. Both of these facilitate businesses in raising their profit levels by improving efficiency and gaining control over stiff competition in market.
Difference between the Horizontal and Vertical Integration
Various differences in between horizontal and vertical integration can be well-understood from difference chart given below: –
| Point of Distinction | Horizontal Integration | Vertical Integration |
|---|---|---|
| Meaning | Horizontal integration refers to integration of two or companies operating at same level of business | Vertical integration refers to integration of companies that are operating at distinct levels of business |
| Aim | It aims to expand the business size. | Focuses on strengthening the supply chain and controlling cost. |
| Result | Gain market share and eliminates competition form market. It leads to increase dominance of business over market. | Reduces cost by elimination of all excess expenses and waste. Enables in attaining cost efficiency by business. |
| Capital required | Costlier than vertical integration as cost of acquiring a new brand will be high due to presence of some goodwill amount in it. | Needs less capital as under this expansion phase, a new manufacturing plant or distribution segment is set up. |
| Types | Cannot be categorized. | It is of two types: Forward integration and Backward integration. |
| Self-sufficiency | Do not become self-sufficient. | Becomes self-sufficient. |
| Control | Control over the market is attained. | Control over the whole industry is attained. |
Business managers while determining the expansion strategy for business analyses it’s both short-term and long-term objectives. These both strategies play a key role in deciding future of organization. One improves the operational efficiency and raises the overall profitability of business. While other one assist in increasing the market share and gaining pricing power. A proper mix of both horizontal and vertical integration is needed by every king of organization.
