Horizontal Integration Vs Vertical Integration

- Used business strategy called vertical integration, which a company would control every stage of industrial process, from mining the raw material to transporting to product.

Increase in logistics efficiency. The combined company would be able to combined the logistics for both company, decreasing overhead and possibly offer more efficient distribution and logistic support.

Vertical integration is a concept in which a company develops or acquires production units for outputs which are

The obvious reason for horizontal expansion is the benefit of cost reduction. As the firm increases its scale of operation it generally experiences a reduction in long-run average costs. After the merger the company can rationalise its operation which leads to instant reduction in overheads. But it’s important not to become to big that leads to diseconomies of scale. Another reason for the reduction in costs is due to the benefit attributed to the learning curve. The learning curve was responsible for the reason why European plan manufacturers could not compete with Boeings’ production efficiency in the 1950s. A firm producing 100 units a day learn faster then a firm producing 10 units a day. A company can also improve its efficiency by merging with a company that already has benefited from the learning curve. The question is how easy the knowledge can be transferred?

Vertical integration is when one firm joins with another at a different stage of the same production process. Forward Vertical is when the other firm is at a later stage and Backward Vertical is when the other firm is at an earlier stage. Vertical integration as a whole allows for a firm to control key stages of the production process; guarantees access to a market; and gains control of supplies. Companies such as Zara and American Apparel are vertically integrated, especially at key stages of

Horizontal integration- after destroying competitors and when they’re about to go out of business he invites them to join together and be one company

Growing through integration is concerned with mergers and takeovers of businesses. There are a number of different ways of integrating: Horizontal (same industry, same stage of production), backward vertical (same industry towards a supplier), forward vertical (same industry towards the customer) and Conglomerate (different industries).

Morgans method of horizontal integration is defined as, “the acquisition of additional business activities that are at the same level of the value chain in similar” (Staff, April 2015). Morgan was buying all the smaller steel mills and railroad companies to allow him to rule the whole market, which worked, but had several downfalls. Even though Morgan owned a large amount of factories and percentage of the industry, it didn’t mean that he was going to make more money easier.

Andrew Carnegie, for one, built a giant steel empire using vertical integration, a business tactic that increased profits by eliminating middlemen from the production line. Conversely, John D. Rockefeller’s Standard Oil Company used horizontal

Horizontal integration involves buying out other companies and taking over one single step of an industrial process. It establishes a monopoly because, with horizontal integration, everyone must go the company that has monopolized that step.

Vertical integration is a business growth strategy for economics of scale. It is typified by one firm engaged in different parts of production example; growing raw materials, manufacturing, transporting, marketing, and/or retailing to expand business in existing market for the firm. It can function in two directions both forward integration and backward integration.

From this sprang forth the popularization of CEOs and different departments to increase efficiency. Vertical integration because many of big businessmen of the time had a large capital to start out, so buying all the means of production was an easy and sound investment. Horizontal integration calls for buying out the competition. In these cases, the largest company would often times drive down their prices so low that the smaller company would attempt to compete, but end belly up and sell the business for a smaller

Horizontal mergers take place between companies in the same industry. These companies are rivals who sell the same goods or services. When a merger takes place, a rival is eliminated and potential for gains become higher. A vertical merger is one in which a firm or company combines with a supplier or distributor. For example, if a car making firm is receiving chassis from two suppliers and decides to acquire them, it is a vertical merger. On the other hand conglomerate mergers are those between firms that

Backward integration is a type of vertical integration in which a company takes control over its suppliers. It is a form of acquisition of the intermediary players involved in supplying the raw materials used in the production process of the firm. Raw materials, intermediate manufacturing and assembly are controlled by the firm whereas distribution to the end customer is done by a third party company. In this way, company increases production efficiency and gains a competitive advantage by lowering its production cost.

Vertical M&A refers to the buyer and seller relationship under which actual of the potential supplier of good and services merge to the other. In vertical M&A firms seek to benefit economies of scope by reducing the uncertainties and transaction costs in forward and backward linkages in the production chain. However, as vertical M&A stay below 10 percent of the total cross-border M&A transactions, they are often of less importance than horizontal M&A.