Integrating horizontally provides the companies with broader access to different unreached markets, resulting in an increase in demand of their product. Reaching to economies of scale by horizontal integration can help a company to achieve cost monopoly and eliminate competition from the market. 3. For example, if two newspapers like the Independent and the Guardian merged, this would be a horizontal integration. There is more access to production inputs. There are additional advantages and disadvantages to consider with vertical integration as well. I will also describe the advantages and disadvantages of regional integration within both articles and relate the stage of economic development of the economically integrated region to potential business opportunities. Horizontal integration happens when two companies who are in similar segments, want to improve their strength. Thus one company might absorb the other or both companies merge together and create a standard operating procedure after the merger. The purpose and objective of horizontal integration can be multiple. While there can be many benefits to horizontal integration, the most obvious benefit is an increased market share for the company. 14 Main Advantages And Disadvantages Of Vertical Integration A lateral integration reduces that number of competitors that there are in the marketplace. 4. These synergistic benefits depend upon the type of companies and their integration strategies, as well as whether the anticipated transaction… Economies of scales. The purpose and objective of horizontal integration can be multiple. – Competition:there is less of it. Thus one company might absorb the other or both companies merge together and create a standard operating procedure after the merger. The bigger, horizontally integrated company can often achieve a higher production than the companies merged, at … Advantages of Horizontal Integration. The Advantages of a Horizontal Merger. The target population of the study comprised of 2553 management staff of 12 selected financial 1.Exploit internal economies of scale. There is increased corporate performance after acquisitions (Healy, Palepu and Ruback, 1992). 2. Companies are going either to buy or acquire one of their competitors. Advantages of horizontal integration. The result of HI is one larger company, which produces more services and products. "Many argue that as we venture further into the frontier of technology we proceed with a slow death of society, by losing culture and ultimately a sense of self. Advantages And Disadvantages Of Horizontal Integration. When two companies merge together, they can benefit from a number of efficiencies. Real-life examples of horizontal integration through mergers. The company has learnt quite a lot in the whole process over the years. Positive differentiation can be created. Diversification is when firms move into new markets that are different from their core … An economy of scale exists when a company is successfully able to increase its level of production and proportionately increase revenue or decrease output costs. If a market has five major competitors, and two of them merge, there are now only four rivals. The company added to this by … The biggest advantage of horizontal merger is that it reduces the competition by reducing the number of companies which are there in the industry and hence company has to spend less time on taking undue stress about how to tackle competition and can concentrate more on improving its product and giving the customer best services by producing good quality product at lowest price. Open Banking: The End of Vertical Integration in Financial Services. Marketing Becoming Familiar with Vertical and Horizontal Integration 2. By adopting cross-sectional survey, data was collected through a self-administered structured questionnaire. Increased Revenue. Cost Reduction. Economies of Scale. Such horizontal mergers or acquisitions re... Do you want full access to this article? Oliver Peacock, Consultant, Simon-Kucher & Partners Strategy & Marketing Consultants. The foremost benefit – and the primary goal for most of the acquisitions – is A business that implements backward integration attempts to move backward in One major advantage of horizontal integration is the potential it gives a company to create greater economies of scale. Horizontal integration helps the companies to achieve economies of scope. Potential Advantages of Horizontal Integration. Understanding Horizontal and Vertical Integration [By Robert James Cimasi MHA, AVA, CMP™] Health Capital Consultants, LLC St. Louis MO Several potential benefits are associated with the integration of companies in the same or related industries. In 2015, Ikea made a huge step in ensuring complete vertical integration by purchasing a Romanian forest. A hundred years ago, the motor industry’s supplier network was too small to cope with growing demand. Advantages of Horizontal integration (1)Lower costs. It is the last in the supply chain as it directly sells to the final consumer. 1. Examples of Horizontal Integration. The advantages of horizontal integration are economies of scale, increased differentiation (more features that distinguish it from its competitors), increased market power, and … Several advantages and disadvantages of vertical integration are necessary to review before determining if this investment is worth making. Horizontal Integration Definition. favor of regional integration and another against it. Effects of Horizontal integration Buying out a competitor in a time bound way to reduce competition. Advantages of the horizontal merger. Here is how a horizontal integration strategy can be beneficial. Examples include adapting to deal with problems in the supply chain, being flexible enough to react to changing market demands, or better planning due to enhanced supply chain visibility… Horizontal integration is the process of merging with or acquiring another company so that the two businesses can combine with one another to increase efficiency and market share or reduce costs. The integrated company Henry Ford decided the solution was to own the whole value chain. Lower costs. However much these advantages, opponents of horizontal integration have also raise serious doubts on this strategy. The higher output leads to greater economies of scale and higher efficiency. Vertical and horizontal integration 1. As mentioned above, horizontal integration takes place when … Specializing in the trade. Companies can share resources common to different products, thus removing cost redundancy. Vertical integration creates predictability because more information is available to the organization. The operational processes are linearly scalable, and this translates into a lower cost of production per unit. What Are the Advantages of Vertical Integration? Pricing advantage through the increase in bargaining power with respect to both suppliers and consumers and a revenue maximising advantage resulting from greater efficiency. Attaining economies of scale. (3)Increased differentiation. Advantages of Horizontal Integration. (2)Higher efficiency. Having standardized offerings allows companies to operate at a large scale. Horizontal integration, as we have seen, is a company’s acquisition of a similar or a competitive business—it may acquire, but it may also merge with or takeover, another company to strengthen itself—to grow in size or capacity, Advantages of horizontal integration Horizontal integration can be advantageous because it can enable economies of scale to be achieved (i.e. Horizontal Integration Advantages 1. There are many advantages of vertical integration that can help your company increase its competitiveness and profitability in the marketplace: Achieve economies of scale When companies lower their per-unit fixed cost, they achieve what is called “economies of scale.” Horizontal integration happens when two companies who are in similar segments, want to improve their strength. 1. It means they are getting bigger and can gain an economy of scale, which will reduce the overall cost of running the business. Ikea is known as a flat-pack retailer that sells mostly wooden furniture, but also other fixtures and fittings. Bigger Base of Customers. Here are some advantages of horizontal integration. All the points above contribute to improved levels of profitability in your business. Horizontal integration also helps you maintain value when the unexpected happens or when change occurs. This includes ensuring your operation remains competitive as Industry 4.0 technologies continue to disrupt manufacturing sectors. Key Takeaways 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. Exploit internal economies of scale including bulk-buying, technical economies, financial economies. they can get better value for money). To a certain extent this may be true, but realistically if we cease to progress we wont be able to survive. Objectives Define horizontal integration List and explain the advantages and disadvantages of horizontal integration Define vertical integration Explain the three types of vertical integration List and explain the advantages and disadvantages of Vertical integration The merger of Adidas with Reebok. Undoubtedly, the most important benefit or advantage of this technique is cross-selling. Advantages of Technology "The advantages Technology has given us outweigh the disadvantages. Gaining larger share of the market and higher profits. List of the Advantages of Vertical Integration 1. 11. Horizontal integration occurs when there is a merger between two firms in the same industry operating at the same stage of production. Vijaya Bank and Dena Bank got merged in Bank of Baroda. First of all, it doesn’t need so many staff members – especially in departments that overlap. It allows a business to control more than one stage of the supply chain. Horizontal integration is a very effective strategy for businesses in a very competitive field of operation. Vertical integrations can help boost profit and allow companies more immediate access to consumers. When a company wishes to grow through horizontal integration, its aim is to acquire a similar company in the same industry. To gain purchase volume discounts by buying raw materials in … This is due to the economies of scale that result from the expansion of a company. The Grand Met Company has proven that there are numerous advantages to be gained when a company buys similar companies in different locations. There are a variety of advantages to horizontal acquisitions. Advantages of Having a Horizontal Market Focus 1. As a result of a horizontal merger, the number of companies in an industry is reduced which mean less competition to deal with and utilizing time to focus on core competencies and enhancing operational or production efficiency. The Horizontal Integration strategy can lead to a business monopoly, as with this strategy it is possible to capture and cover the provision of services, reduce competition, achieve high economic profitability and access new markets. Diversification. Cost savings from the rationalization of the business – this often this involves short-term job losses. The merger of HP (Hewlett-Packard) with Compaq. Horizontal integration involves the combination of two business operating in the same industry and at the same stage of the supply chain. competitive advantage of utilizing horizontal integration strategies in the Nigeria financial industry. Its strategy of reducing costs, improving the operations and building the brands worked to make it a global leader in the market place. Backward integration happens when the organization expands in reverse along its production path into the manufacturing sector. The management has learnt that the benefits and the advantag… 2.Cost savings from the rationalization of the business – this often this involves sizeable job losses Economies of scope provide cost advantage in production of two or more products. If similar businesses merge, the company expands its line of products or services and increases its power in the industry. The overall costs of operation will be considerably cheaper. The horizontal integration strategy may be employed for several reasons, including the following: To gain production efficiencies by producing more units at central manufacturing facilities. Benefits of Horizontal Integration Larger Market Share. Government interference may be the greatest disadvantage to horizontal integration, stopping the process before it even begins. The most obvious benefit is an increased market share or market power. Horizontal mergers occur when two businesses within the same industry -- and which produce the same kind of product -- join forces to reduce overhead while increasing profits. Advantages of Horizontal Integration.
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