When the same level of value chain acquires additional business activities, then it is referred to as horizontal integration. This can be said that horizontal integration refers to control and ownership. Business organizations make use of this strategy in order to sell the same product in various markets. Horizontal integration occurs when two firms in the same industry merge or one firm takes control of another firm. An example can be when one car manufacturing company merges with another one then we can call it horizontal integration. Both firms have the same level of production and both belong to the same industry. Horizontal integration can also be referred to as takeovers or buy out. Many of the firms go for horizontal integration in order to make monopolies.
Horizontal integration and the term horizontal expansion are closely related to each other. When a firm expands its business in the same industry in which it is currently working in order to increase its market share for the product or service it is offering, then this process is referred as horizontal expansion.
When firms opt for horizontal integration then they might get various benefits from this thing. Let us see what these benefits might be:
- A firm is able to get economies of scale as it offers large quality of the product or service in various markets.
- The firm also enjoys economies of scope as it is able to gather and share resources for making its products when it merges with another firm.
- Other than this, the firm is also able to strengthen its position in the market as it gets a chance to target more customers with the help of more suppliers, distributors, wholesalers and retailers.
- Sometimes, horizontal integration helps to reduce the cost of international trade too if various factories are being operated in the international markets.