Question

Discuss how horizontal and vertical integration relate to an organization’s business planning. How would you use horizontal integration to expand an organization of your interest; give strategies and examples.

Answer 1

Horizontal integration refers to acquiring the companies which are at the same level of the given company. It can be either acquiring your competitor or the one producing the same kind of the product you are manufacturing but has certain advantages. it can be a strategy even to have monopoly control over the market. A company having horizontal integration is able have economies of scale and even reduce competition. The company is even able to set barriers to entry by having this form of integration.

Vertical integration refers to capturing one of the companies before or after your supply chain. This can be done by either acquiring the suppliers or the service sector like transportation. This type of integration helps the company to have greater control of the supply chain earn downstream and upstream profits by reducing the cost.

Horizontal integration lowers down the cost, reduces the risk and competition. It also helps to take advantage of strengths of other company by merger. This type of integration also helps in entering international market and diversification.

So let's say my company is Walt Disney who has been able to expand its business by acquiring Marvel. The strategies for horizontal integration are- Joint Venture, Merger, Wholly owned subsidiary, Acquisition, Contract manufacturing, franchising, licensing and Investment in shares.