Like its counterpart, Vertical Integration, Horizontal Integration is a potential strategic move which a firm may consider. Horizontal Integration means to acquire business activities at the same level of the value chain. This can mean:
* Acquiring activities dealing with similar products, so that synergies accrue and there is a degree of ‘sensible’ diversification. For example complementary confectionary products supported by the same basic marketing messages.
* Acquiring activities that are substitutes for one’s products. Hence a firm can cover the threat from substitutes implicated as one of Porter’s 5 Forces. For example Canon moving into digital camera’s.
* Acquiring competitors. In this way reducing the threat from competition.
* Completing the product range which is ‘expected’ by the customer. For example, Microsoft has pursued this strategy with its Microsoft Office Software.
Usage of Horizontal Integration. Applications
Strengths of Horizontal Integration. Benefits
* Economies of scale.
* Synergy. Economies of scope.
* Defense against substitutes.
* Reduction in competition.
* Fulfilling customer expectations.
* Increased negotiation power. Get more leverage over powerful suppliers or customers.
Limitations of Horizontal Integration. Disadvantages
* Synergies may be more imaginary than real. A famous example was SAAB with its cars and aircraft.
* Substitutes market is often very different. To turn an acquisition into a success is a big and lengthy management challenge.
* Reduction in competition, or even a monopoly, may lead to anti-trust issues.