Horizontal Integration Definition

Combining Companies at the Same Production Stage

Horizontal integration is a business strategy in which two companies operating at the same stage of the production process merge or acquire each other. It involves the consolidation of firms within the same industry or sector.

Example: If Ford Motor Company were to merge with Toyota Motor Company, it would be an example of horizontal integration since both are major automobile manufacturers.

Reasons for Horizontal Integration

Eliminating Competition:

Companies may pursue horizontal integration to eliminate competition and gain a larger market share by merging with or acquiring rivals.

Example: Two competing airlines merge to reduce competition and dominate the aviation market.

Economies of Scale:

Horizontal integration allows firms to achieve greater economies of scale. This means they can benefit from cost reductions, such as bulk purchasing discounts due to increased input procurement.

Example: A supermarket chain acquires a competitor, enabling it to buy products in larger quantities and negotiate better prices from suppliers.

Asset Acquisition:

Firms engage in horizontal integration to acquire the assets, such as patents, technology, or customer databases, of other companies in the same industry.

Example: A tech company acquires a smaller software development startup to gain access to its innovative technology.

Defence Against Takeovers:

Horizontal integration can make a company stronger and more resistant to hostile takeover attempts by expanding its size and influence within the industry.

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Horizontal integration-definition

Business Management

In summary, horizontal integration involves the merging or acquisition of companies operating at the same stage of production, with the aim of eliminating competition, achieving economies of scale, acquiring assets, and enhancing the company's position in the industry, including defending against hostile takeovers.