The company acquired some plants and also created its own manufacturing businesses to ensure the consistency of its products around the globe and better quality. This airline industry merger is said to have maintained the best of both companies’ worlds. Delta broke into new markets and benefited from the strategic competitive ways of Northwest, while Northwest’s regional reach was expanded. Oftentimes, the goals behind this type of vertical merger are to capture synergies and improve productivity by creating a business with a more efficient supply chain.

When analyzing industries and market structures, horizontal integration is a strategy that is often employed by firms to gain a competitive edge. At its core, horizontal integration refers to the process of acquiring or merging with competitors that operate within the same industry and at the same level of the value chain. This can be seen as a way to consolidate market share, reduce competition, and increase profits. However, the benefits of horizontal integration are not always so clear-cut and can vary depending on the industry and the specific circumstances of the companies involved. Furthermore, horizontal integration opens up avenues for cost savings and operational efficiencies.

Horizontal equity is a crucial principle that must be implemented to achieve social justice. By providing equal treatment to individuals with similar needs and circumstances, we can create a more just and equitable society. The real-world examples discussed in this section demonstrate how horizontal equity can be implemented in various aspects of our lives, from taxation to employment.

Expanding a Business AQA GCSE Business

It’s commonly used in startups or creative industries to foster collaboration and flexibility. We have supported over 734 startups in raising more than $2.2 billion, while directly investing over $696 million in 288 companies. Our comprehensive support system includes a worldwide network of mentors, investors, and strategic partners, allowing us to transform ideas into scalable, market-ready businesses. FasterCapital will become the technical cofounder to help you build your MVP/prototype and provide full tech development services. Another notable example of a horizontal integration was Disney’s $7.4 billion acquisition of Pixar in 2006. The cost savings from equipment, employees, operations, and other departments led to an estimated annual synergy of $2 Billion for the new combined company.

Corporate leadership teams generally pursue this type of transaction when it’s likely to result in economies of scale or, alternatively, economies of scope. Successful horizontal integration allows companies to leverage their combined strengths, optimize their value and supply chain, and secure a competitive edge in bustling marketplaces. Horizontal integration represents a robust business growth strategy for firms aiming to consolidate market power and broaden their operational scope within their industry. The following examples illustrate how significant companies have leveraged this strategy to expand their market presence, diversify their offerings, and achieve significant operational synergies. Eliminating direct competitors through horizontal integration significantly reduces market competition. Rivals are absorbed, removing them from the playing field and consolidating market power.

1. When companies come together, they bring with them a wealth of experience, expertise, and intellectual capital.
2. However, such extensions can have drawbacks, as pointed out by Al Ries and Jack Trout in their marketing classic, Positioning.
3. Facebook’s horizontal integration of Instagram was truly historic with a return of 100% in just over six years.
4. This not only enhances profitability but also allows companies to offer competitive pricing to customers, further solidifying their market position.
5. Because both companies produced hundreds of hygiene-related products from razors to toothpaste, the merger reduced the marketing and product development costs per product.

Introduction to Horizontal Integration and HHIOriginal Blog

Therefore, companies that are considering horizontal integration should carefully evaluate the benefits and risks of this strategic move. The acquisition of additional business activities at the same level of the value chain is referred to as horizontal integration. This form of expansion contrasts with vertical integration by which the firm expands into examples of horizontal integration upstream or downstream activities. Horizontal growth can be achieved by internal expansion or by external expansion through mergers and acquisitions of firms offering similar products and services.

As opposed to a vertical integration which helps a company shift to earlier or later in the supply chain, horizontal integration further solidifies a company’s current position along a manufacturing process. One example of successful horizontal integration and HHI implementation is the merger of Disney and Pixar in 2006. This allowed Disney to expand its product offerings into the lucrative animation market, while also leveraging the creative talents of the Pixar team. The merger also resulted in significant cost savings and synergies, as the two companies were able to share resources and expertise. This not only reduces the number of players in the market but also eliminates potential threats to market share and profitability. For example, when Facebook acquired Instagram in 2012, it eliminated a major competitor in the social media space and solidified its dominance in the industry.

What are the Risks of Horizontal Integration Merger Strategy?

1. For example, in 2016, the proposed merger between Staples and Office Depot was blocked by the federal Trade commission due to concerns about reduced competition in the office supply market.
2. The deal was just one of a series of transactions the company conducted to achieve that level of scale.
3. Similarly, horizontal integration can increase one company’ market share and reduce competition, eliminating direct competitors and strengthening the acquiring company’s position against remaining rivals.
4. This approach aims to increase one company’s market power and control over the supply chain by uniting two companies into a single entity.
5. Horizontal integration is a strategic move by businesses used to expand their reach and market share within a certain industry.
6. Through collusion, the airlines coordinated surcharges and manipulated pricing mechanisms, resulting in higher costs for consumers and businesses.

Pixar operated in the same animation space as Disney, but its (digitally) animated movies used cutting-edge technology and an innovative vision. The deal is now widely considered to have literally and figuratively reanimated Disney, expanded its market share, and boosted its profits. There are multiple types of mergers including horizontal, vertical, conglomerate, and concentric. The acquisition did not involve the merger of names but the Walt Disney studious was made a subsidiary of Walt Disney Company. The advertisement revenue from Instagram also increased and so the value of the parent company.

In these cases, major technology companies have absorbed other companies in the same industry to increase their market share and diversify their business operations. One of the most prominent examples of horizontal integration is Facebook’s acquisition of Instagram and WhatsApp. By implementing horizontal integration, companies can access new markets, streamline business operations, and increase revenue potential through expanded product lines and distribution channels. Horizontal integration can be an effective growth strategy for companies looking to expand their market share and gain a competitive advantage. However, it is important to consider the potential antitrust implications and carefully evaluate the benefits and risks of consolidation.

Disney — Pixar

One of the most definitive examples of horizontal integration was the acquisition of Instagram by Facebook (now Meta) in 2012 for $1 billion. Both companies operated in the same industry (social media) and shared similar production stages in their photo-sharing services. Horizontal integration can provide several benefits to companies, but it also comes with its own set of risks and challenges. Companies need to be aware of these risks and challenges and have a clear strategy to mitigate them. By doing so, companies can maximize the benefits of horizontal integration and achieve sustainable growth in the long run. In the pharmaceutical industry, horizontal integration and HHI have been used to create more diversified product portfolios and improve R&D capabilities.

WhatsApp had a massive user base and a strong presence in emerging markets, which complemented Facebook’s existing platform. By acquiring WhatsApp, Facebook eliminated a potential competitor and gained access to a vast user base, enabling it to maintain its dominance in the social media industry. Aside from legal issues, another concern is whether the anticipated economic gains will materialize. Before expanding the scope of the firm through horizontal integration, management should be sure that the imagined benefits are real.

This cartel was able to control the market, fix prices at artificially high levels, and stifle competition. The scandal came to light when an employee blew the whistle, and the companies involved faced significant fines and legal repercussions. Through the acquisition of Instagram, Facebook reduced its competition in the social media market space.

Both approaches (vertical integration vs. horizontal integration) work well and bring many benefits. When choosing the path to go, the most important step is to assess all the possible benefits and challenges and realize if the benefits will cover the challenges. Another important factor to consider is the Herfindahl-Hirschman Index (HHI), which is a measure of market concentration. If the HHI exceeds a certain threshold, it may indicate that a market is becoming too concentrated and anti-competitive. Therefore, regulators may step in to block mergers and acquisitions that would result in an unacceptable level of market concentration.