When a company wishes to grow through a horizontal integration, it is looking to acquire a similar company in the same industry. It may be seeking to increase its size, diversify its product offerings or services, achieve economies of scale, reduce competition, or gain access to new customers or markets. Some examples of a horizontal integration are Marriott's 2016 acquisition of Starwood Hotels & Resorts Worldwide (hospitality industry), Anheuser-Busch InBev's (AB InBev) 2016 acquisition of SABMiller (beer companies), AstraZeneca's 2015 acquisition of ZS Pharma (biotech), Facebook's 2012 acquisition of Instagram (social media), and Disney's 2006 acquisition of Pixar (entertainment media).
Examples of Vertical Integration
A company looking to achieve vertical integration is seeking to acquire a company that operates in the production process of the same industry. It may be seeking to strengthen its supply chain, reduce production costs, capture upstream or downstream profits, or access new distribution channels. To do this, one company acquires another company that is either before or after it in the supply chain process. Some examples of vertical integration include Google's 2011 acquisition of smartphone producer Motorola, Ikea's 2015 purchase of forests in Romania to supply its own raw materials, and Amazon's integration into hardware by producing Kindle Fire tablets. A company may choose vertical integration over outsourcing.
When it comes to a vertical integration, a company can either integrate forward or backward. Backward integration occurs when a company decides to buy another company that makes an input product to the acquiring company's product. An example of this is if a car manufacturer acquires a tire manufacturer. Forward integration occurs when a company decides to take control of the post-production process. An example of this is if the same car manufacturer acquires an automotive dealership.