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What is Horizontal Integration?

Daniel Liden
By
Updated May 16, 2024
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Horizontal integration is a practice in business by which companies that produce a similar product or provide a similar service merge. Generally, a company will engage in horizontal integration to increase its share of the market for a certain kind of product or service. Such horizontal growth is an important part of the study of business and of microeconomics, and is also an important strategic management skill. If a business comes to control all production of a given product or service, it is said to have a horizontal monopoly.

Integration is considered horizontal only if all mergers and acquisitions are conducted at the same level of production. A car company that merges with another car company is engaging in horizontal integration, but a car company that purchases a refinery or a food chain is not. The goal of horizontal integration is not to control all aspects of production, from raw materials to the final product. It is, instead, to be able to produce a large number of the same product or similar products and to control a large share of the market.

Vertical integration, on the other hand, does have a goal of controlling all aspects of the production of a product or service. A car company engaging in vertical expansion would, indeed, attempt to acquire refineries, mines, factories, and anything else necessary to make the finished product. A monopoly formed through vertical expansion is known as a vertical monopoly. Horizontal expansion and integration is much more common than vertical expansion and integration.

Horizontal integration brings many advantages to those businesses that are able to effectively expand. They are able to sell more of their products, which is usually the goal of any company. Businesses that supply a few different products or services can more effectively manage their resources after merging. Controlling a larger share of a given market gives a business greater power over the flow of products and resources from other companies. All of this added control, power, and productive ability adds to the effectiveness of the business.

There are possible downsides to horizontal integration, as well. When a large enough share of a market becomes focused in a small number of businesses, anti-trust legal issues can arise. Also, unplanned expansion can be more harmful than beneficial. If a company expands without a solid horizontal plan, it can quickly be overwhelmed. With the proper planning, though, horizontal expansion can lead a business to great rewards.

SmartCapitalMind is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Daniel Liden
By Daniel Liden , Former Writer
Daniel Liden, a talented writer with a passion for cutting-edge topics and data analysis, brings a unique perspective to his work. With a diverse academic background, he crafts compelling content on complex subjects, showcasing his ability to effectively communicate intricate ideas. He is skilled at understanding and connecting with target audiences, making him a valuable contributor.

Discussion Comments

By SauteePan — On Feb 09, 2011

Subway11 -I think that a great example of vertical integration involves companies like Exxon and UPS.

Exxon owns all of its oil refineries in addition to its individual gas stations. They own every aspect of the product that they have.

UPS is similar in that it owns all of its UPS trucks, planes, and proprietary software that allow the company to function. In addition, the company owns UPS stores across the country.

By subway11 — On Feb 06, 2011

Mutsy -I also think that as companies become more defined they will use horizontal integration by having another company manufacture their product in order to streamline the company’s expenses.

They may even decide to have the product manufactured overseas in order to continue to sell their product in a more competitive way.

By mutsy — On Feb 05, 2011

Horizontal and vertical integration really work to help a business expand. I remember a few years ago a company by the name of Market Force which was a mystery shopping provider bought out SG Marketing and Speedmark in order to boost its market share.

It is now the largest provider of mystery shopping services which allows the company to have a competitive advantage over the other mystery shopping providers.

They not only have more clients as a result of the merger but they also have the most registered mystery shoppers because of the merger.

Daniel Liden

Daniel Liden

Former Writer

Daniel Liden, a talented writer with a passion for cutting-edge topics and data analysis, brings a unique perspective to...
Learn more
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