Investment Banking Tutorials
- Investment Banking Free Course
- Investment Banking Basics
- What is Investment Banking? (Overview of what do they actually do!)
- Investment Banking vs Commercial Banking
- Equity Research in an Investment Bank
- What is Asset Management Company AMC
- Sales and Trading in Investment Banking
- Private Placement, IPO and FPO in Investment Banking
- Investment Banking – Underwriters and Market Makers
- Investment Banking – Mergers and Acquisitions
- Investment Banking – Restructuring and Reorganisation
- Investment Banking Roles and Responsibilities
- Market Makers
- Propreitary Trading
- Deal Origination (Sourcing)
- Initial Public Offering (IPO)
- Top 4 Must Know Investment Banking Charts (Free Download Template included)
- Pitch Book | Guide to Investment Banking Pitch Book (Examples)
- What is LBO?
- Leverage buyout Lbo Analysis
- LBO Financing
- Trading Floor
- Market Order vs Limit Order
- Bid vs Ask
- Merchant Bank
- Best Investment Banking Books
- Nasdaq vs Dow Jones
- Nasdaq vs Nyse
- Differences Between NSE and BSE
- Investment Banking Careers
- Investment Banking Interview Questions (with Answers)
- How to get into Investment Banking?
- Investment Banking Job Description
- Investment Banking Division (IBD)
- Investment Banking Associate Salary
- Analyst vs Associate
- Investment Banking Job For Graduates (Engineers) | Top 8 Tips
- How to get an Investment Banking Internship?
- Top 10 Finance Certifications Programs
- Investment Banking Lifestyle
- Investment Banking Exit Opportunities
- Investment Banking Case Studies
- Top 10 Best Finance courses (with Online Certification)
- Investor Relation Job Description
- Financial Analyst Job Description
- Investment Banking vs Equity Research
- Investment Banking vs Asset Management
- Commercial Banking vs Merchant Banking
- Investment Banking vs Corporate Banking
- Portfolio Management vs Investment Banking
- Investment Banking vs Hedge Fund Manager
- Investment Banking vs Investment Management
- Investment Banking vs Private Equity
- Careers in Trading
- Investment Banking Firms
- Top Bulge Bracket Investment Banks
- Top Middle Market Investment Banks
- Top Boutique Investment Banks
- Investment Banking in Dubai
- Investment Banking In Nigeria
- Investment Banking in Abu Dhabi
- Investment Banking in Hong Kong
- Investment Banking in Russia
- Investment Banking in Brazil
- Investment Banking in China
- Investment Banking in Australia
- Investment Banking in Saudi Arabia
- Investment Banking in Singapore
- Investment Banking in London (UK)
- Investment Banking in India
- Investment Banking in Ireland
- Investment Banking in South Africa
- Investment Banking in Canada
- Investment Banking in Germany
- Investment Banking in France
- Investment Banking in Malaysia
- Investment Banking in Philippines
- Investment Banking in Boston
- Investment Banking in San Francisco
- Investment Banking in Chicago
- Investment Banking in Atlanta
- Investment Banking in Toronto
- Top Banks
- Top Banks in Australia
- Top Banks In Austria
- Top Banks In Bahrain
- Top Banks In Belgium
- Top Banks In Bermuda
- Top Banks In British Virgin Islands
- Top Banks In Brunei
- Top Banks In Canada
- Top Banks In Cayman Islands
- Top Banks In Denmark
- Top Banks In Finland
- Top Banks In France
- Top Banks In Germany
- Top Banks In Greenland
- Top Banks In Guernsey
- Top Banks In Ireland
- Top Banks In Isle of Man
- Top Banks In Japan
- Top Banks In Kuwait
- Top Banks In Liechtenstein
- Top Banks In Luxembourg
- Top Banks In Macau
- Top Banks In Norway
- Top Banks In Oman
- Top Banks in Pakistan
- Top Banks in Philippines
- Top Banks In Puerto Rico
- Top Banks In Qatar
- Top Banks In Saudi Arabia
- Banks in South Africa
- Top Banks In Singapore
- Top Banks In South Korea
- Top Banks In Sweden
- Top Banks In Switzerland
- Top Banks in UAE
- Top Banks in United Kingdom
- Top Banks in USA
- Banks in Nigeria
- Top 10 Banks in Netherlands
- Mergers and Acquisitions
- What is Mergers and Acquisitions?
- Mergers vs Acquisitions
- Synergy in M&A
- Successful Mergers and Acquisitions
- Financing Acquisitions
- Statutory Merger
- Joint Venture
- White Knight
- Hostile Takeover
- Golden Parachute
- Poison Pills
- What is Amalgamation?
- Spin off vs Split Off
- Forward Integration
- Backward Integration
- Horizontal vs Vertical Integration
- What is Divesting / Divestiture?
- Bootstrap Effect
- PAC MAN Defense
- Flip-In Poison Pill
- Flip-Over Poison Pill
- Tender Offer
- Friendly Takeover
- Amalgamation vs Merger
- Lobster Trap Defense
- Asset Purchase vs Stock Purchase
- Greenshoe Option
- Dawn Raid Takeovers
- Crown Jewels Defense
- Best Mergers and Acquisitions Books
- What is Asset Restructuring?
Differences Between Horizontal vs Vertical Integration
When a business kicks off into the market, it aims at growing its customer base and also its capacity to deliver the best of its products and services to the customers. But easier said than done, this has never been a sprint but a marathon. Such expansions in the business world require a lot of resources in terms of finances, human capital and most importantly, a business expansion strategy. There are many strategies that companies employ in order to establish their place amongst its peers in the market but at a high level, they can be grouped into two, namely Horizontal and Vertical Integration.
What is Horizontal Integration?
Horizontal Integration is a type of business expansion strategy, which comprises a company acquiring other companies from the same business line or at the same level of value chain so as to subside competition.
- Due to lesser competition, there operates an environment of consolidation and monopoly in the industry. However, it can also create an oligopoly if there are still some independent players in the market.
- The company can also diversify its products and services. When a company expands using horizontal integration, it achieves growth in its operational size and economies of scale due to increased production level.
- This helps the company in spanning its reach to a larger customer base and market. Horizontal Integration often raises antitrust concerns, as the combined firm will have a larger market share than either firm did before merging.
- Some recent example to quote such a strategy in action would be Walt Disney Company’s $7.4 billion acquisition of Pixar Animation Studios in 2006.
What is Vertical Integration?
Vertical Integration is a type of business expansion strategy, which comprises a company acquiring various entities engaged in different stages of the value chain.
- In Vertical Integration, two firms that are doing business for the same product but are currently at different levels of the supply chain process, merge into the single entity which opts to continue the business, on the same product line as it was doing before integration.
- Vertical Integration is an expansion strategy used to gain control over the entire industry. There are mainly two forms of Vertical Integration namely, Forward Integration and Backward Integration.
- A merger situation where the company acquires control over its distributors, then it is referred to as downstream or forward integration whereas when the company acquires control over its supplier, then it is upstream or backward integration.
Horizontal vs Vertical Integration Infographics
Here we provide you with the top 6 differences between Horizontal Integration vs Vertical Integration
Horizontal vs Vertical Integration Key Differences
Here are the key differences between Horizontal and Vertical Integration –
- Horizontal Integration occurs between two firms which are similar in operations, in terms of product and production level whereas in Vertical Integration the two firms to be merged, operates at different stages of the supply chain.
- Horizontal Integration brings synergy, but not self-sufficiency to operate independently in the value chain while Vertical Integration helps the company gain synergy with self-sufficiency.
- Horizontal Integration helps to acquire control over the market, but Vertical Integration helps in gaining control over the whole industry.
- Heinz and Kraft Foods merger is an example of Horizontal Integration as both of them produce processed food for the consumer market.
- A store, like Target, which has its own store brands is an example of Vertical Integration. It owns the manufacturing, controls the distribution, and is the retailer, offering products at a much lower price by cutting out the middleman.
Horizontal vs Vertical Integration Head to Head Differences
Let’s now look at the head to head differences between Horizontal and Vertical Integration
|Basis for Comparison||Horizontal Integration||Vertical Integration|
|Merger Direction||Firm A Firm B Firm C||Firm A
|Design||The merging firms have the same or similar operational activities in terms of product||The merging firms operate at different levels of the value chain|
|Objective||It aims to increase the size of the business||It aims to strengthen the supply chain|
|Result||It results in the elimination of competition and maximizes market share||It results in the reduction of cost and wastage|
|Control||The strategy helps in gaining control over the market||The strategy is useful to gain control over the industry|
Application of Horizontal vs Vertical Integration
Integration strategy is mainly used by the firms to:
- minimize competition by taking over competitors
- increase their market shares
- become more diversified in operational presence
- eliminate the cost of developing a new product and making it available to the market
Horizontal integration can prove to be a successful strategy when:
- competitors are not in the capacity to go for head-on competition for long due to the limitation of resources at their disposal
- a company is competing in a growing industry
- economies of scale or monopoly situation are beneficial for all the stakeholders of the business
Though the Horizontal Integration, as explained above, may appear to be a promising strategy it may not work in all situations. It depends on the company’s value proposition as well as its resources and capabilities. The model provides a great recipe for success and leverage but is limited to factors such as the synergy created through the Horizontal Integration to promote the products and services at the new scaled-up production levels and also depends on the place that the company holds in the entire value chain.
Vertical Integration helps a company in:
- increasing entry barriers for new entrants
- absorbing both upstream and downstream profits
- smoothening the supply chain
But Vertical Integrations may also cause:
- fall in quality of good due to lack of competition
- companies to focus less on their core competencies and more on newly acquired businesses
- reduction in flexibility to increase or decrease production levels
Horizontal vs Vertical Integration – Conclusion
The decision to choose between horizontal vs vertical integration different inorganic strategies must involve considering their both short-term and long-term growth objectives. While both horizontal vs vertical integration mergers represent significant benefits, a company must remember that such a transaction is only successful if the new company is integrated strategically and seamlessly. So, the merger should create some value in terms of synergy, market leadership or cost leadership which could then straightaway be translated into profits, promising long-term customer base and a sustainable business environment.
The decision whether to employ horizontal and vertical integration has a long-term influence on the business strategy of a company.
This has a been a guide to the top differences between horizontal integration vs vertical integration. Here we also discuss the horizontal vs vertical integration key differences along with infographics, and comparison table. You may also have a look at the following articles –