After the merger, LN Mittal was named as the president of Arcelor-Mittal and became the majority stakeholder in the company. The merger created a massive global manufacturer that is responsible for around 10 percent of the world’s steel production. Horizontal integration is similar to this in that a company (that would be you in this example), wants to seek out different deals. Remember, it’s because they’re all selling similar products, (this would be you seeking out different restaurants because you want all your favorites within reach). You also want to make sure that it’s in an area where there are a lot of your favorite fast food restaurants.
Understanding Horizontal Acquisitions
Procter & Gamble’s 2005 acquisition of Gillette is a good example of a horizontal merger that realized economies of scope. Because both companies produced hundreds of hygiene-related products from razors to toothpaste, the merger reduced the marketing and product development costs per product. The examples show that, in many cases, horizontal integration pays off as those involved can widen their reach and eliminate weaker competitors. Companies can gain institutional knowledge, expertise, and strengths that they may lack from another firm. Ultimately, integrating firms reduce their costs while increasing revenues. This merger proved extremely beneficial to both companies, even without merging the “houses” that produced the animation.
Both companies operated in the same industry (social media) and shared similar production stages in their photo-sharing services. It is a type of integration strategies pursued by a company in order to strengthen its position in the industry. A corporate that implements this type of strategy usually mergers or acquires another company that is in the same production stage.
Mergers and acquisitions are two types of business transactions that involve the consolidation of two or more companies. A merger combines two companies together—usually those of similar size and operations. This type of transaction is usually friendly, where all parties involved agree to the consolidation. An acquisition, on the other hand, occurs when one company purchases another.
That’s because the new, larger company may not be able to react or adapt to market swings, consumer tastes, and economic conditions as quickly as a smaller company would. With these complementary activities the company pursues a common objective e.g. a greater market share. Vertical Integration is the opposite from Horizontal Integration, and it models the style of ownership and control. The acquisition did not involve a merge of names, but did involve Walt Disney Studios as a subsidiary and The Walt Disney Company as owner. Pixar wanted Disney to only distribute the films and completely cede production control and marketing rights to the films.
The main difference between horizontal and vertical integration lies in examples of horizontal integration the type of companies being acquired or merged. Horizontal integration involves companies at the same level of the value chain within the same industry — essentially, competitors. In contrast, vertical integration involves acquiring or merging with companies at different levels of the value chain, such as suppliers or distributors. Horizontal integration occurs when two companies in the same industry at the same stage in the production process merge into a single entity. It allows companies to gain market share and market power, eliminate their competition, acquire new products and services, a larger customer base, and increase their revenue.
Bigger Base of Customers
Pixar’s innovation, when combined with Disney’s formulaic storytelling method and top-notch character marketing, led to both increased market shares and spikes in profits. A larger, more recognizable brand can attract a wider customer base and potentially command higher prices. Consider two popular ride-hailing apps merging—the combined entity would become a dominant player in the market, with greater brand recognition for consumers. Once a horizontal acquisition is complete, the target firm’s identity is usually dissolved and it becomes part of the acquirer. Shares of the target firm are dissolved if it is public and its shareholders may receive cash or stock in the acquiring company. These advantages of Horizontal Integration can lead to the growth of partnerships in R&D, production, offering of products and services and more.
- Companies undergoing horizontal integration may face several challenges, including cultural integration, where merging companies must blend differing corporate cultures, management styles, and operating procedures.
- In a merger, both companies are striving to become a larger presence in their existing market.
- Selecting horizontal and vertical integration depends on the company’s current market position and long-term growth strategies.
Horizontal Integration Examples: 5 Companies That Made It Work
Understanding horizontal integration is essential for any business looking to bolster its market presence or enhance its service offerings. The dynamics of many industries mean that the market can only support three to four large companies. As a result, horizontal integrations become a popular means of acquiring market share.
Regulatory Scrutiny
The company’s most significant acquisitions have invariably been in warehouses and distribution centers, ensuring it has the footprint to deal with the expanding e-commerce market. Bank of America was born in this wave of mergers and acquisitions when Nations Bank horizontally merged with Bank of America in 1998 in a $62 billion deal. This business strategy doesn’t involve M&A but rather new product developments or investment in existing activities, such as geographic expansion.
It wants to make more money and invest the money that they’re making for the company to grow bigger. As it relates to macroeconomics and different areas of management that’s why we give you the example of Blockbuster and Netflix. In 1998, German carmaker Daimler-Benz AG merged with Chrysler Corporation, the smallest of the three US automakers – Daimler bought 92% of Chrysler to form DaimlerChrysler AG. It was called the ‘Merger of Equals’, but has gone down in business history as a disaster.
Once the shares transferred over, the company agreed to change its name to United Continental Holdings. What ended up happening was that Wal-Mart began to make money on all of the sales that would come in for that particular region. They began making money in and around different regions because of all of the strategies they set up ahead of time. To better understand the differentiation of these two business strategies, read below the practical example of two organizations that make transformation decisions for the company. In 2012, Facebook bought Instagram for $1 billion in cash and stock with the intention to keep Instagram management independent.
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