Horizontal integration refers to a strategy in business where a firm acquires or creates production units that come up with similar outputs, either competitive or complementary. It can also be described as additional activities of a business that are at a similar level in the value chain in the same or even different industries.
A company can achieve horizontal integration by external or internal expansion. Since there are different companies involved in similar production stages, horizontal integration facilitates sharing of resources at these production stages. A merger of the competitors occurs when the products produced by the firms are similar.
A monopoly is created if all companies that produce a service or a good in a specific market merge. This is also known as lateral integration. An example of instances when horizontal integration occurs is when an oil firm acquires more oil refineries. It also occurs when a truck manufacturer acquires another automobile manufacturer.
Horizontal integration is a strategy that helps a company in reducing competition while increasing its market share through the use of economies of scale. An example of this is when an automobile manufacturer acquires the competitor who is engaged in doing the same activity in the market.
Vertical integration is the opposite of horizontal integration. Vertical integration entails integration of different production stages of a few units of production. There are several benefits that come with horizontal integration. For instance, a company that engages in horizontal integration benefits from having more power in the market after acquiring competitors.
There is also cost reduction when it comes to international trade. Horizontal integration enables a firm to operate more cost-effectively in the foreign markets. This is because the company has strong presence and monopoly pricing as well as the economies of scope which all give the firm more bargaining power.
Media is one of the industries where this strategy is commonly used. Through horizontal integration, media ownership has increased concentration in transnational and trans-media conglomerates. Today, the media industry is considered as a center that allows wealthy persons or investors to purchase different ventures along the same line or industry.
For example, in Hollywood studios, vertical integration has been displaced by horizontal integration as seen by holdings’ consolidation in multiple industries. Investors in the industry consider owning various media outlets that run virtually similar content productive because there is minor variation of information and format among the outlets. This makes running the outlets easier and cost-effective.
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