A horizontal integration consists of corporations that acquire a similar firm in the same industry, while a vertical integration consists of companies that obtain a company that operates either ahead or after the acquiring company in the generation process. Let’s find out the difference between horizontal and vertical combination
When a corporation wishes to improve through horizontal integration, it is seeking to double its size, diversify its product or service, produce economies of scale, reduce opposition, or gain access to new customers or markets.
To do this, one company obtains another company of similar size and progress, in the same industry. Two exceptional examples of horizontal integration are the addition of Pixar by Disney or the addition of Instagram by Facebook.
When a company wishes to develop through vertical integration, it is seeking to extend its supply chain, reduce its stock costs, capture upstream or downstream profits, or entrance downstream distribution channels.
To do this, one corporation acquires another company that is either before or behind it in the supply chain process. A great pattern of a vertical combination is when Verizon and AT&T opened their retail locations through acquisition.
When it comes to a vertical combination, a company can unless integrating ahead in a forward integration or backward in a delayed integration.
A backward synthesis occurs when a company determines to own another company that makes an information product to the acquiring company’s product.
An example of this is if a car producer acquires a tire manufacturing company. A forward integration occurs when a company decides to take control of the post-production process.
A model of this is if the same car manufacturer acquires an automotive dealership. The vertical integration patterns above with Verizon and AT&T are also forward unions.
Both horizontal and vertical combination is most important but there is some difference between horizontal and vertical combination which are discussed below:
Difference between horizontal and vertical combination
|Point of Difference||Horizontal Combination||Vertical Combination|
|Ownership and control||Single ownership and control||
Different ownership and control
|Stages of Production||Same stages of production||Different stages of production|
|Competition in the raw material market||Horizontal competition cannot eliminate competition among the business units in the raw materials market.||Vertical combination tries to eliminate competition in the raw materials market.|
Competition in distribution
|Horizontal competition can eliminate competition in the distribution of ultimate products.||The vertical combination cannot eliminate competition in the distribution of ultimate products.|
|Horizontal competition can ensure effective control over the market||The vertical combination cannot ensure effective control over the market supply.|
|In horizontal combination member units is free in their internal affairs. They enjoy complete internal autonomy and independence.||In vertical combination, members have to the controlling body even for routine matters.|
Economics of a large-scale operation
|Horizontal competition can ensure certain economics of production.||Usually, the vertical combination cannot ensure the economics of large-scale operations|
|In horizontal combination, each member produces the end product e.g. cotton cloth, etc.||Under vertical combination, each member looks after a particular sector and gets sufficient scope to specialize itself in a particular branch of production.|
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