Definition

Horizontal integration refers to a strategy where a company expands its operations or acquires businesses that are at the same level of the production or distribution chain. 

Description

Horizontal integration involves a company expanding its reach within its industry by acquiring or merging with other businesses that offer similar products or services. This strategy allows the company to broaden its market presence, increase market share, and potentially reduce competition by integrating complementary operations.

Importance of horizontal integration strategy

Horizontal integration strategy holds significance for businesses due to several reasons:

1. Market Dominance: By acquiring or merging with competitors or businesses operating in the same industry segment, a company can enhance its market share and strengthen its position, enabling it to exert more significant influence and control over the market.
2. Economies of Scale: Consolidating operations with similar businesses can lead to economies of scale, as it enables shared resources, reduced duplication of efforts, and increased efficiency in production, distribution, and marketing processes.
3. Increased Efficiency: Horizontal integration allows companies to streamline operations, optimize supply chains, and leverage synergies between complementary businesses, improving operational efficiency and cost savings.
4. Diversification: Integrating horizontally into related product lines or services can diversify a company's revenue streams, reducing dependence on a single market segment and providing opportunities for growth and resilience against market fluctuations.

How to start with horizontal integration?

Steps to start with horizontal integration

1. Market Analysis: Through comprehensive market research, identify potential target companies operating in the same industry segment or offering complementary products/services.
2. Strategic Partnerships or Acquisitions: Explore options for partnerships, collaborations, or acquisitions with identified companies, evaluating market fit, synergy potential, and financial viability.
3. Negotiation and Due Diligence: Stress the importance of engaging in negotiations with target companies and conducting thorough due diligence. This step is vital in assessing their financial health, operational capabilities, and, most importantly, compatibility with your business goals. 
4. Integration Planning and Execution: Develop a detailed integration plan outlining strategies for merging operations, consolidating resources, aligning cultures, and maximising synergies, then execute the plan efficiently to realise the benefits of horizontal integration.

Trends that can impact horizontal integration

Some of the trends that can impact horizontal integration:

1. Digital Transformation: Increasing digitization across industries is reshaping business models and creating opportunities for horizontal integration by acquiring tech-savvy startups or digital platforms to enhance competitiveness and expand market reach.
2. Industry Consolidation: Growing market consolidation driven by mergers and acquisitions presents opportunities for horizontal integration as companies seek to strengthen their market position, consolidate operations, and achieve economies of scale.
3. Globalisation: Globalisation trends encourage companies to expand internationally, leading to horizontal integration opportunities through partnerships, joint ventures, or acquisitions with companies operating in foreign markets to access new customer bases and distribution channels.

Example
 

A short brand example of horizontal integration is Disney's acquisition of 21st Century Fox. This move allowed Disney to expand its entertainment empire by integrating Fox's film and television studios, as well as its content distribution networks, strengthening Disney's market presence and diversifying its content offerings across various platforms.

FAQ
 

What is horizontal power sharing?

Distribution of decision-making authority and resources across different departments, units, or divisions within an organisation is horizontal power sharing. This approach encourages collaboration, teamwork, and shared responsibility among various segments of the company, allowing for more efficient decision-making, resource utilisation, and synergy creation across the organisation's horizontal structure.

What is horizontal diversification?

Horizontal diversification for startups involves expanding into new products or services that are unrelated to the current offerings but still target the same customer base, aiming to capture a larger share of the market and reduce dependency on a single product or market segment.