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Meet SAP Integration Suite

Di!erence Between Horizontal and Vertical

Integration
Last updated on July 27, 2021 by Surbhi S

Growth and expansion are the two needs of every firm, irrespective of its size
and nature. Firms can grow and expand themselves by way of integration.
There are two major forms of integration, i.e. Horizontal Integration and
Vertical Integration. Horizontal Integration is a kind of business expansion
strategy, wherein the company acquires same business line or at the same
level of value chain so as to eliminate competition to a greater extent.

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Conversely, Vertical Integration is used to rule over the entire industry by

covering the supply chain. It implies the integration of various entities
engaged in different stages of the distribution chain.

So, take a read of the given article to get a better understanding of the
differences between Horizontal and Vertical Integration.

Content: Horizontal Integration Vs Vertical

Integration
1. Comparison Chart
2. Definition
3. Key Differences
4. Video
5. Example
6. Conclusion

Comparison Chart

BASIS FOR HORIZONTAL

VERTICAL INTEGRATION
COMPARISON INTEGRATION

Meaning When two firms combine, Vertical Integration is when a

whose products and firm takes over another firm or
production level is same, firms, that are at different
then this is known as stage on the same production
Horizontal Integration. path.

Figure

Objective Increasing the size of the Strengthening the supply

business chain

Consequence Elimination of competition Reduction of cost and

and maximum market share. wastage.

Capital Higher Lower

Requirement

Self- No Yes
sufficiency

Strategy used Market Industry

to exercise
control over

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Definition of Horizontal Integration

The merger of two or more firms, which are engaged in the same line of
business and their activity level is also same; then this is known as
Horizontal Integration. The product may include complementary product, by-
product or any other related product, competitive product or entering into the
product’s repairs, services, and maintenance section.

Horizontal Integration reduces competition between firms in the market, as if

the producers of the product get combined they can create a
monopoly. However, it can also create an oligopoly if there are still some
independent manufacturers in the market.

It is a tactic used by most of the companies to expand its size and achieve
economies of scale due to increased production level. This will help
the company to approach new customers and market. Moreover, the
company can also diversify its products and services.

One of the examples of horizontal integration is the acquisition of Instagram

by Facebook and Burger King by McDonald’s.

Definition of Vertical Integration

Vertical Integration is between two firms that are carrying on business for
the same product but at different levels of the production process. The firm
opts to continue the business, on the same product line as it was done
before integration. It is an expansion strategy used to gain control over
the entire industry.

There are two forms of vertical integration, as described below:

Forms of vertical integration

Forward Integration:  If the company acquires control over distributors,

then it is downstream or forward integration.
Backward Integration: When the company acquires control over its
supplier, then it is upstream or backward integration.

The cause of integration is to strengthen the production-distribution chain

and to minimize the cost and wastage of products at various levels.
The integration also enables the company to keep upstream and
downstream profits and eliminate intermediaries.

Apple is the best example of vertical integration; it is the biggest and a

renowned manufacturer of smartphones, laptops and so on. It controls the
whole production and distribution process itself, from the beginning to the
end. Another example of this is Alibaba, a Chinese e-commerce company,
that owns the entire system of payment, delivery, search engine and much
more.

Key Di!erences Between Horizontal and Vertical

Integration
The following are the major differences between horizontal and vertical
integration:

1. Horizontal Integration occurs between two firms whose product and

production level are same. Vertical Integration is an integration of
two firms that operates in different stages of the manufacturing
process.

2. Horizontal Integration aims at increasing the size of business and

scale of production, whereas Vertical Integration focuses on
strengthening and smoothening its production-distribution process.

3. The greatest advantage of horizontal integration is that it eliminates

competition between firms, which ultimately extends the market
share of the company. Conversely, Vertical Integration results in
lowering the cost of production and wastage.

4. Horizontal Integration only brings synergy, but not self-sufficiency

while Vertical Integration helps the company gain synergy with self-
sufficiency.

5. Horizontal Integration helps to acquire control over the market, but

Vertical Integration is a strategy used for gaining control over the
whole industry.

Video: Horizontal Vs Vertical Integration

Horizontal Integration Vs Vertical Integration: with De5nition & Co…

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Example

Diagrammatic Representation of Horizontal and Vertical Integration

Horizontal Integration

Integration of Exxon and Mobil, oil companies to increase market dominance

is an example of Horizontal Integration.

Vertical Integration

Firms like Mafatlal, National Textile Corporation, etc have opened up retails
stores owned by them, in order to have an effective control over distribution
activities.

Conclusion

Integration strategy is used by the firms to increase market share, become

more diversified, eliminating the cost of developing new product and
introducing it to the market, minimizing competition by taking over
competitor’s business, etc.

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You Might Also Like:

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and Vertical Analysis and Vertical Power Sharing

Supply Chain Vs Value Chain

Difference Between Perfect Difference Between Supply Chain

Competition and Monopolistic and Value Chain
Competition

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Difference Between Product and Difference Between Perfect

Production Concept Competition and Imperfect
Competition

Comments

ANOOP GOYAL says

March 18, 2017 at 12:36 pm

How come horizontal integration be a strategy to exercise control over

market ?

Reply

Surbhi S says
March 18, 2017 at 12:44 pm

The acquisition of additional business, that operates in the same line,

increases market dominance and also reduce the intensity of competition.
Hence, it is a strategy to exercise control over market.

Reply

Jerry says
October 24, 2017 at 8:58 am

you’re absolutely correct. I find the strategy quite interesting and demanding
as well as complex..

Reply

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