A company that seeks to expand through a horizontal integration can achieve economies of scale, economies of scope, increased market power or market share, reduction of production costs, reduction of competition and increases in other synergies. However, a company that decides to integrate horizontally must face disadvantages that include antitrust issues and legalities, the fact that the expected economic gains might never be realized, the reduction in flexibility and the potential of actually destroying value rather than creating it.

Horizontal integration occurs when a company decides to merge, acquire or take over another company in the same industry and at the same stage of production. Disney's acquisition of Pixar or the merger of Exxon and Mobil are both great examples of horizontal integration. In both examples, two companies of similar size and operation, operating in the same industry, combined to form a stronger company.

When a company can achieve the advantages of a horizontal integration, the company can diversify its products or services, sell those products or services to a larger market, reduce the costs to produce its newly diversified products or services, and reduce the amount of external competition.

When horizontal integration hampers a company, the worst disadvantage the company can face is a reduction in overall value to the firm because the expected synergies never materialize, despite the costs of the horizontal integration. Other disadvantages can include legal repercussions if the horizontal merger results in a company that may be considered a monopoly and a reduction in flexibility due to the fact that it is now a larger organization.

  1. Can Internet companies be vertically integrated?

    Find out how online businesses are beginning to take advantage of vertical integration for many of the same reasons as traditional ... Read Answer >>
  2. Why do companies merge with or acquire other companies?

    The reasons for company mergers and acquisitions include synergy, diversification, growth, improving competition, and supply ... Read Answer >>
  3. What are the most famous instances of backward integration?

    Learn more about backward integration in the supply chain and see how two famous examples, Carnegie Steel and Apple, used ... Read Answer >>
  4. When is outsourcing preferable to vertical integration?

    Deciding between outsourcing and vertical integration can be challenging. Understand the benefits of each to make the most ... Read Answer >>
  5. How does a merger affect the shareholders?

    Explore the impact of a merger and understand how the process affects shareholders of the newly merged firm in terms of stock ... Read Answer >>
Related Articles
  1. Investing

    What Investors Can Learn From M&A Payment Methods

    How a company pays in a merger or acquisition can reveal a lot about the buyer and seller.
  2. Investing

    The Wonderful World Of Mergers

    While acquisitions can be hostile, these varied mergers are always friendly.
  3. Personal Finance

    Common Interview Questions for Data Integrity Analysts

    Prepare for a data integrity analyst job interview by identifying some of the key questions commonly asked and developing winning responses.
  4. Small Business

    What is Backward Integration?

    What is backward integration, and how can it affect industries?
  5. Financial Advisor

    Asset Manager Ethics: Rules Governing Capital Markets

    The integrity of the capital markets needs to be kept at utmost importance for all investors. This article shows how to maintain the integrity while investing.
  6. Investing

    Foreign Direct Investment

    Foreign Direct Investment is a form of cross-border investment.
  7. Trading

    3 Chart Patterns That Suggest Prices Are Headed Lower

    Long-term sell signals on the charts of some larger players suggest that the broader markets could be prepping for a major move lower.
  8. Managing Wealth

    The Top Reasons Why M&A Deals Fail

    A significant number of M&A transactions result in failure. Here are the top reasons why it happens.
  9. Insights

    Varco Perfects New Manufacturing Methods (NOV)

    National Oilwell Varco showed off a new manufacturing method by creating a plastic tube that stretches nearly 5 miles, to be used in shale fracking.
  1. Horizontal Acquisition

    A horizontal acquisition is when one company acquires another ...
  2. Horizontal Merger

    A merger occurring between companies in the same industry. Horizontal ...
  3. Horizontal Line

    A line that appears to proceed from left to right, or parallel ...
  4. Horizontal Analysis

    A procedure in fundamental analysis in which an analyst compares ...
  5. Economic Integration

    Economic integration is an arrangement between different regions ...
  6. Fibonacci Channel

    A variation of the Fibonacci retracement pattern in which the ...
Hot Definitions
  1. Quick Ratio

    The quick ratio measures a company’s ability to meet its short-term obligations with its most liquid assets.
  2. Leverage

    Leverage results from using borrowed capital as a source of funding when investing to expand the firm's asset base and generate ...
  3. Financial Risk

    Financial risk is the possibility that shareholders will lose money when investing in a company if its cash flow fails to ...
  4. Enterprise Value (EV)

    Enterprise Value (EV) is a measure of a company's total value, often used as a more comprehensive alternative to equity market ...
  5. Relative Strength Index - RSI

    Relative Strength Indicator (RSI) is a technical momentum indicator that compares the magnitude of recent gains to recent ...
  6. Dividend

    A dividend is a distribution of a portion of a company's earnings, decided by the board of directors, to a class of its shareholders.
Trading Center