Both companies operated in the social media industry, and by acquiring Instagram, Facebook gained a larger share of the social media market. Merging operations through horizontal integration allows companies to achieve economies of scale. Combining production facilities, distribution networks, and administrative functions enables integrated companies to spread fixed costs over larger outputs. A merger via horizontal integration would benefit rival companies operating in the same industry.
Major mergers in industries like technology and telecommunications frequently undergo regulatory scrutiny to ensure competitive fairness. While horizontal integration aims to grow a company’s presence within the same industry, vertical integration is about gaining control over different stages of the supply chain. For mid-sized businesses, internal expansion might involve opening new locations launching new products, or leveraging existing infrastructure to move into new markets. Initially focused on marketing automation tools, Hubspot expanded its offerings by creating an education platform that provides free resources and certifications. Horizontal integration is important because it allows a company to grow, expand, diversify, and gather a larger market presence. Like any merger, horizontal integration does not always yield the synergies and added value that was expected.
Reporting Intangible Assets
- After the merger, LN Mittal was named as the president of Arcelor-Mittal and became the majority stakeholder in the company.
- Intangible assets like intellectual property, brand recognition, and proprietary technologies are initially recorded at fair value, often using methods such as discounted cash flow analysis or relief-from-royalty approaches.
- Effective cultural integration requires clear communication, change management strategies, and fostering a unified organizational culture that respects diverse backgrounds and practices.
- The combined company had a crude steel production of around 27 million tonnes in 2007.
The merger also granted stakeholders 1.05 shares of UAL stock for each share they held in Continental Airlines. Once the shares transferred over, the company agreed to change its name to United Continental Holdings. Reduced competition can lead to increased pricing control and improved profit margins, as integrated companies face less pressure to compete on price. DealRoom provides an end-to-end solution to support every aspect of horizontal and vertical integrations, ensuring you can navigate the complexities of M&A confidently and precisely. Transform your company and find out how to add value to your transaction by scheduling a free demo today.
Examples of Horizontal Integration
Consolidation enhances financial performance indicators like return on equity (ROE) and asset turnover, providing shareholders a clearer view of the integrated company’s performance. This approach allows for controlled, gradual growth, strengthening the company’s market position without the risks of blending cultures or facing regulatory issues common in mergers or acquisitions. The ultimate goal of vertical integration is to become independent of suppliers and control more aspects of the supply chain. On the other hand, horizontal integration strives to eliminate competitors, grow in market size, and create economies of scale. Diversifying product offerings may provide cross-selling opportunities and increase each business’ market. A retail business that sells clothes may decide to also offer accessories or it might merge with a similar business in another country to gain a foothold there and avoid having to build a distribution network from scratch.
Vertical Integration example
This is in contrast to vertical integration, where firms expand into upstream or downstream activities, which are at different stages of production. The deal, valued at over $13 billion, allowed Marriott to achieve cost savings through economies of scale and increased market power, giving the new company a competitive edge in the crowded hospitality market. Horizontal integration is a pivotal business strategy for growth, prominently employed across numerous industries. Companies leverage this approach to consolidate their market position by merging with or acquiring another firm operating at the same level in the supply chain. If the management implements the horizontal integration strategy efficiently, then it would amplify the customer market share.
This article serves as a detailed roadmap for businesses contemplating such moves, offering guidance on navigating potential risks and capitalizing on the opportunities presented by vertical and horizontal integration. Another good example would consist in the merging of two consultancy and trading companies. The first one with only 125 employees is going to merge with the second one with more than employees.
Timing your business’s horizontal integration with these trends can facilitate economies of scale and market power, key drivers for competitive strategy and business growth. Wait for a moment when your business operations are steady and can absorb the shock of integrating with a supplier or another type of business at the same level of the value chain. Ensure that you have the bandwidth to deal with the legal scrutiny that inevitably follows. This strategic move isn’t just for expanding; it’s about smartly positioning your business for continued – and accelerated – growth.
Horizontal Integration Examples: 5 Companies That Made It Work
By weighing these disadvantages, businesses can better evaluate whether horizontal integration aligns with their long-term strategy and risk tolerance. Explore how horizontal integration shapes financial reporting, with industry examples and insights on intangible asset reporting. When building a contingency plan for horizontal integration, make sure to assess risk, monitor regulatory compliance, and include ways to enhance the integration of teams and processes. If the Federal Trade Commission (FTC) and DOJ have reason to believe that a merger violates antitrust laws, the deal can be blocked.
Horizontal integration impact on market power and competition
Horizontal integration could take place in the form of acquisition, merger, and takeover. She enjoys writing in these fields to educate and share her wealth of knowledge and experience. If Instagram was going to take its consumers, then it was best that it acquired it early on. This was good business for Facebook, as Instagram is now valued in excess of $100 billion. The benefits derived from the companies participating in the merger come at the expense of consumers, suppliers or vendors.
It is also possible that the company wants to avoid a price war by reducing competition. Company may want to achieve economies of scale by acquiring another manufacturing facility and supply chain. Horizontal integration is the acquisition or merger of businesses that operate at the same level of the value chain in the same industry. This entails a business acquiring or merging with another business that makes or offers similar goods or services as it does.
One outstanding example in the hospitality industry is Marriott International’s acquisition of Starwood Hotels & Resorts. This strategic move not only expanded Marriott’s global reach but also created the world’s largest hotel company, demonstrating how horizontal integration can produce industry leaders with unparalleled service offerings. Strategic misalignment is also a risk, where merged companies may struggle to align their long-term goals, business strategies, and operational priorities. Differences in product offerings, market positioning, or customer bases can complicate integration efforts and impede synergy realization. This merger resulted in a global technology leader worth the US $87 billion that offers the most extensive IT products and services for customers and businesses. The new Hewlett-Packard became a global player of top-level in access devices, IT services, printers, and imaging, etc.
- This integration showcased how large-scale collaborations could lead to a fortified market presence and a formidable catalog of intellectual property that fans adored worldwide.
- By merging with or acquiring a company that operates in your domain, your products and services can instantly find new audiences.
- Horizontal integration often involves significant upfront costs and ongoing expenses related to mergers, acquisitions, and integration efforts.
The other two forces, the power of suppliers and of customers, drive vertical integration. However, when horizontal mergers succeed, it is often at the expense of consumers, especially if the merger reduces competition. For this reason, horizontal mergers are heavily scrutinized by regulators, to see if they violate antitrust laws.
Government scrutiny and laws and regulations would come into play because of the antitrust lawsuits. The merging and acquisition result in the form of monopoly and eliminating the competition from the market. It means one player would dominate the market and it’s against the idea of the free market. Economies of scale are when you have a lower cost due to the bulky amount of production and manufacturing.
Horizontal Integration as a production strategy including an example
With 86% focusing on increasing revenue and profitability, horizontal integration can be a compelling route for CFOs and executive teams to consider, but it can present challenges and attract regulatory attention. For example, Microsoft specifically wanted to enhance its presence in the video game market. This example of an acquisition shows an often deliberate strategy for a specific sector in which a company wants to achieve a very specific goal. In a merger, both companies are striving to become a larger presence in their existing market.
If horizontal mergers within the same industry concentrate market share among a small number of companies, it creates an oligopoly. If a merger threatens competitors or seems to drastically restrict the market and reduce consumer choices, it could attract the attention of the Federal Trade Commission. Similarly, horizontal integration can increase one company’ market share and reduce competition, eliminating direct competitors and strengthening the acquiring company’s position against remaining rivals. Different companies go for horizontal integration strategies for various reasons like reducing and eliminating competition, economies examples of horizontal integration of scale, differentiating product portfolio, and business expansion. Sometimes, it also leads toward monopoly and oligopoly when businesses merge in the same industry.