Advantages And Disadvantages Of Horizontal Integration. Potential Advantages of Horizontal Integration. The foremost benefit â and the primary goal for most of the acquisitions â is Backward integration happens when the organization expands in reverse along its production path into the manufacturing sector. This is due to the economies of scale that result from the expansion of a company. 2.Cost savings from the rationalization of the business â this often this involves sizeable job losses Advantages of Horizontal integration (1)Lower costs. List of the Advantages of Vertical Integration 1. For example, if two newspapers like the Independent and the Guardian merged, this would be a horizontal integration. Advantages of Technology "The advantages Technology has given us outweigh the disadvantages. Vijaya Bank and Dena Bank got merged in Bank of Baroda. Government interference may be the greatest disadvantage to horizontal integration, stopping the process before it even begins. Horizontal integration is the process of merging with or acquiring another company so that the two businesses can combine with one another to increase efficiency and market share or reduce costs. There is more access to production inputs. 2. Undoubtedly, the most important benefit or advantage of this technique is cross-selling. Advantages of horizontal integration. Diversification is when firms move into new markets that are different from their core ⦠To gain purchase volume discounts by buying raw materials in ⦠(3)Increased differentiation. The horizontal integration strategy may be employed for several reasons, including the following: To gain production efficiencies by producing more units at central manufacturing facilities. Economies of scope provide cost advantage in production of two or more products. Effects of Horizontal integration Buying out a competitor in a time bound way to reduce competition. There is increased corporate performance after acquisitions (Healy, Palepu and Ruback, 1992). Advantages of the horizontal merger. Horizontal Integration Advantages 1. Advantages of horizontal integration Horizontal integration can be advantageous because it can enable economies of scale to be achieved (i.e. Lower costs. There are many advantages of vertical integration that can help your company increase its competitiveness and profitability in the marketplace: Achieve economies of scale When companies lower their per-unit fixed cost, they achieve what is called âeconomies of scale.â If similar businesses merge, the company expands its line of products or services and increases its power in the industry. It is the last in the supply chain as it directly sells to the final consumer. Horizontal integration helps the companies to achieve economies of scope. First of all, it doesnât need so many staff members â especially in departments that overlap. The higher output leads to greater economies of scale and higher efficiency. The overall costs of operation will be considerably cheaper. Several advantages and disadvantages of vertical integration are necessary to review before determining if this investment is worth making. Companies are going either to buy or acquire one of their competitors. Integrating horizontally provides the companies with broader access to different unreached markets, resulting in an increase in demand of their product. Reaching to economies of scale by horizontal integration can help a company to achieve cost monopoly and eliminate competition from the market. Examples include adapting to deal with problems in the supply chain, being flexible enough to react to changing market demands, or better planning due to enhanced supply chain visibility⦠they can get better value for money). Real-life examples of horizontal integration through mergers. The purpose and objective of horizontal integration can be multiple. Ikea is known as a flat-pack retailer that sells mostly wooden furniture, but also other fixtures and fittings. Increased Revenue. The merger of Adidas with Reebok. The bigger, horizontally integrated company can often achieve a higher production than the companies merged, at ⦠Horizontal integration is a very effective strategy for businesses in a very competitive field of operation. Such horizontal mergers or acquisitions re... Do you want full access to this article? Benefits of Horizontal Integration Larger Market Share. Diversification. However much these advantages, opponents of horizontal integration have also raise serious doubts on this strategy. Understanding Horizontal and Vertical Integration [By Robert James Cimasi MHA, AVA, CMPâ¢] Health Capital Consultants, LLC St. Louis MO Several potential benefits are associated with the integration of companies in the same or related industries. Companies can share resources common to different products, thus removing cost redundancy. Vertical and horizontal integration 1. It allows a business to control more than one stage of the supply chain. The biggest advantage of horizontal merger is that it reduces the competition by reducing the number of companies which are there in the industry and hence company has to spend less time on taking undue stress about how to tackle competition and can concentrate more on improving its product and giving the customer best services by producing good quality product at lowest price. This includes ensuring your operation remains competitive as Industry 4.0 technologies continue to disrupt manufacturing sectors. Having standardized offerings allows companies to operate at a large scale. To a certain extent this may be true, but realistically if we cease to progress we wont be able to survive. The Grand Met Company has proven that there are numerous advantages to be gained when a company buys similar companies in different locations. The result of HI is one larger company, which produces more services and products. In 2015, Ikea made a huge step in ensuring complete vertical integration by purchasing a Romanian forest. Its strategy of reducing costs, improving the operations and building the brands worked to make it a global leader in the market place. Specializing in the trade. Horizontal integration involves the combination of two business operating in the same industry and at the same stage of the supply chain. A lateral integration reduces that number of competitors that there are in the marketplace. favor of regional integration and another against it. Horizontal Integration Definition. Cost Reduction. 1. Thus one company might absorb the other or both companies merge together and create a standard operating procedure after the merger. Advantages of Horizontal Integration. One major advantage of horizontal integration is the potential it gives a company to create greater economies of scale. The management has learnt that the benefits and the advantag⦠Bigger Base of Customers. competitive advantage of utilizing horizontal integration strategies in the Nigeria financial industry. A business that implements backward integration attempts to move backward in Pricing advantage through the increase in bargaining power with respect to both suppliers and consumers and a revenue maximising advantage resulting from greater efficiency. Attaining economies of scale. Horizontal integration happens when two companies who are in similar segments, want to improve their strength. Thus one company might absorb the other or both companies merge together and create a standard operating procedure after the merger. The purpose and objective of horizontal integration can be multiple. These synergistic benefits depend upon the type of companies and their integration strategies, as well as whether the anticipated transactionâ¦
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