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5th Sem Strategic Management Notes

Horizontal Integration

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Last updated: 18 July 2023

Horizontal Integration

Horizontal integration is the process of acquiring or merging with competitors, leading to industry consolidation.
 Horizontal integration is a strategy where a company acquires, mergers, or takes over another company in the same industry value chain.

It is a type of integration strategies pursued by a company in order to strengthen its position in the industry. A corporate that implements this type of strategy usually mergers or acquires another company that is in the same production stage. For example, Disney merging with Pixar (movie production), Exxon with Mobile (oil production, refining, and distribution) or the infamous Daimler Benz and Chrysler merger (car developing, manufacturing and retailing).

The purpose of horizontal integration (HI) is to grow the company in size, increase product differentiation, achieve economies of scale, reduce competition, or access new markets. When many firms pursue this strategy in the same industry, it leads to industry consolidation (oligopoly or even monopoly).

HI can occur in a form of mergers, acquisitions, or hostile takeovers. The merger is the joining of two similar sizes, independent companies to make one joint entity. The acquisition is the purchase of another company. A hostile takeover is the acquisition of the company, which does not want to be acquired.

HI may be an effective strategy when:

  • Organization competes in a growing industry.
  • Competitors lack some capabilities, competencies, skills, or resources that the company already possesses.
  • HI would lead to a monopoly that is allowed by a government.
  • Economies of scale would have a significant effect.
  • The organization has sufficient resources to manage M&A.

The following diagram illustrates HI in manufacturing industry:

Horizontal integration can be in merger or acquisition format. Merger occurs when Company A merges with Company B and both companies retain their equal control of the merged company. An acquisition is when Company A acquires Company B and only Company A controls new firm.

Difference between horizontal and vertical integrations

HI is different from vertical integration, where a firm usually expands into another production stage rather than merging or acquiring the company in the same production stage. For example, a company is vertically integrating if it expands from the manufacturing industry to the retailing industry, while HI would mean buying other firms in the same manufacturing industry.

An image illustrating the difference between vertical and horizontal integrations, which were described in previous paragraph.

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Syllabus BHM308

01 Organizational Strategy

  1. Mission
    1. Mission Statement Elements and its importance
  2. Objectives
    1. The necessity of formal objectives
    2. Objective Vs Goal
  3. Strategy
    1. Developing Strategies
      1. Adaptive Search
      2. Intuition search
      3. Strategic factors
      4. Picking Niches
      5. Entrepreneurial Approach

02 Environmental and Internal Resource Analysis

  1. Need For Environmental Analysis
  2. Key Environmental Variable Factors<
  3. Opportunities and Threats
    1. Internal resource analysis
  4. Functional Areas Resource Development Matrix
  5. Strengths and Weaknesses
    1. Marketing
    2. Finance
    3. Production
    4. Personnel
    5. Organization

03 Strategy Formulation

  1. Strategy (general) Alternatives
    1. Stability Strategies
    2. Expansion Strategies
    3. Retrench Strategies
    4. Combination Strategies
  2. Combination Strategies
    1. Forward integration
    2. Backward integration
    3. Horizontal integration
    4. Market penetration
    5. Market development
    6. Product development
    7. Concentric diversification
    8. Conglomerate diversification
    9. Horizontal diversification
    10. Joint Venture
    11. Retrenchment
    12. Divestiture
    13. Liquidation
    14. Combination

04 Strategic Analysis and Choice (allocation of Resources)

  1. Factors Influencing Choice
    1. Strategy formulation
  2. Input Stage
    1. Internal factor evaluation matrix
    2. External factor evaluation matrix
    3. Competitive profile matrix
  3. Matching Stage
    1. Threats opportunities – weaknesses – strengths matrix (TOWS)
    2. Strategic position and action evaluation matrix (SPACE)
    3. Boston consulting group matrix (BCGM)
    4. Internal – External matrix
    5. Grand Strategy matrix
  4. Decision Stage
    1. Quantitative Strategic Planning Matrix (QSPM)

05 Policies in Functional Areas

  1. Policy
  2. Product Policies
  3. Personnel Policies
  4. Financial Policies
  5. Marketing Policies
  6. Public Relation Policies

06 Strategic Implementation Review and Evaluation

  1. McKinsey 7S Framework
  2. Leadership And Management Style
  3. Strategy Review And Evaluation
    1. Review the underlying bases of Strategy
    2. Measure Organisational Performance
    3. Take corrective actions