Horizontal integration

thumb|right|A diagram illustrating horizontal integration and contrasting it with vertical integration

Horizontal integration is the process of a company increasing production of goods or services at the same level of the value chain, in the same industry. A company may do this via internal expansion or through mergers and acquisitions.

The process can lead to monopoly if a company captures the vast majority of the market for that product or service. Benefits of horizontal integration include: increasing economies of scale, expanding an existing market, and improving product differentiation.

Horizontal integration contrasts with vertical integration, where companies integrate multiple stages of production of a small number of production units.

Horizontal alliance

Horizontal integration is related to horizontal alliance (also known as horizontal cooperation). However, in the case of a horizontal alliance, the partnering companies set up a contract, but remain independent. For example, Raue & Wieland (2015) describe the example of legally independent logistics service providers who cooperate. Such an alliance relates to competition.

Aspects

Benefits of horizontal integration to both the firm and society may include economies of scale and economies of scope. For the firm, horizontal integration may provide a strengthened presence in the reference market. This means that with the merger, two firms would then be able to produce more revenue than one firm alone. It may also allow the horizontally integrated firm to engage in monopoly pricing, which is disadvantageous to society as a whole and which may cause regulators to ban or constrain horizontal integration. Strategies around horizontal mergers often relate to revenue production, reducing market entrants or expanding into new markets.

Mergers:

Mergers and acquisitions (M&A) refer to the consolidation of companies or assets through various financial transactions, such as mergers, acquisitions, and consolidations. M&A activities can be an effective way for companies to expand their operations, diversify their product or service offerings, and increase their market share.

Mergers involve the combination of two or more companies to form a new entity. This can occur through a stock-for-stock transaction, where shareholders of both companies receive shares in the new entity based on a predetermined exchange ratio. Alternatively, a cash merger can occur, where one company purchases another using cash or other financial instruments. Alternatively, a hostile takeover can occur, where the acquiring company purchases a controlling stake in the target company without its approval.

M&A activities can have a significant impact on various stakeholders, including shareholders, employees, customers, and suppliers. Shareholders can benefit from increased stock prices and dividends, while employees may face job losses or changes to their employment terms. Customers and suppliers may also be affected by changes to product or service offerings and supplier relationships.

Internal Expansion:

In addition to mergers and acquisitions, companies can also pursue internal expansion through horizontal integration. This involves expanding their operations and product or service offerings within their existing industry by acquiring or developing new capabilities.

Horizontal integration can take various forms, including expanding through new product development, expanding geographically, or acquiring competitors or suppliers. This strategy can enable companies to increase their market share and achieve economies of scale by leveraging existing resources and capabilities.

Internal expansion through horizontal integration can also involve the integration of different business functions, such as production, marketing, and sales, to streamline operations and increase efficiency.

However, there are potential drawbacks to internal expansion through horizontal integration.

Overall, internal expansion through horizontal integration can be a viable strategy for companies looking to achieve growth and gain a competitive advantage. Media is seen to amass in center where wealthy individuals have the ability to purchase such ventures (e.g., Rupert Murdoch).

That emerged are new strategies for content development and distribution designed to increase the "synergy" between the different divisions of the same company. Studios seek content that can move fluidly across media channels. Both produce processed food for the consumer market.

On 9 December 2013, Sysco agreed to acquire US Foods but on 24 June 2015, the federal judge ruled against the deal saying that such merger would control 75% of the U.S. foodservice industry and that will stifle competition. It would have been horizontal integration, as both distribute food to restaurants, healthcare, and educational facilities.

On 16 November 2015, Marriott International announced that it would acquire Starwood for $13.6 billion, creating the world's largest hotel chain. The acquisition was finalized on 23 September 2016.

The AB-Inbev acquisition of SAB Miller for $107 Billion, which completed in 2016, is one of the biggest deals of all time.

On 1 November 2017, Centurylink bought Level 3 Communications for $34 billion, and incorporated Level 3 as part of Centurylink.

On 14 December 2017, The Walt Disney Company announced that they were to acquire 21st Century Fox for $52.4 billion in stock, which included the famed 20th Century Fox film studio, FX Networks, and a 30% stake in Hulu. Both companies produced and distributed films and television series, as well as each owning a 30% stake in Hulu. Due to Disney's ownership of ABC, the acquisition did not include the Fox Broadcasting Company, as the Federal Communications Commission's rules prohibited a single company from owning multiple of the four major broadcast networks; the Fox Broadcasting Company was instead planned to be spun-off into a new company tentatively named "New Fox". The acquisition closed on March 20, 2019, for an increased cash-and-stock offer of $71.3 billion; the assets that were not acquired by Disney, including the Fox Broadcasting Company, were spun-off into Fox Corporation.

References

</references>

Horizontal alliance

Aspects

See also

References