View source for Horizontal integration

{{Short description|Business process}}
{{Use American English|date = February 2019}}
{{Use dmy dates|date = February 2019}}
[[File:Integration in English.svg|thumb|right|A diagram illustrating horizontal integration and contrasting it with vertical integration]]
{{Marketing}}
{{Competition law}}
'''Horizontal integration''' is the process of a [[company]] increasing [[production (economics)|production]] of goods or services at the same level of the [[value chain]], in the same industry. A company may do this via [[Organic growth|internal expansion]] or through [[mergers and acquisitions]].{{r|b1|b2|b3}}

The process can lead to [[monopoly]] if a company captures the vast majority of the market for that product or service.{{r|b3}} Benefits of horizontal integration include: increasing [[economies of scale]], [[Market penetration|expanding an existing market]], and improving [[product differentiation]]. 

Horizontal integration contrasts with [[vertical integration]], where companies integrate multiple stages of production of a small number of production units.

==Horizontal alliance==
{{main|Business alliance}}
Horizontal integration is related to horizontal alliance (also known as horizontal cooperation). However, in the case of a horizontal alliance, the partnering companies set up a contract, but remain independent. For example, Raue & Wieland (2015) describe the example of legally independent [[logistics service provider]]s who cooperate.<ref name="rauewieland">{{Cite journal |doi = 10.1108/IJLM-08-2012-0083|title = The interplay of different types of governance in horizontal cooperations|journal = The International Journal of Logistics Management|volume = 26|issue = 2|pages = 401–423|year = 2015|last1 = Raue|first1 = Jan Simon|last2 = Wieland|first2 = Andreas|url = https://research-api.cbs.dk/ws/files/44030905/andreas_wieland_interplay_different_types_postprint.pdf|hdl = 10398/4de0953a-3920-409a-b63a-60342c976528| s2cid=166497725 |hdl-access = free}}</ref> Such an alliance relates to [[competition]].

== Aspects ==
Benefits of horizontal integration to both the firm and society may include [[economies of scale]] and [[economies of scope]]. For the firm, horizontal integration may provide a strengthened presence in the reference market.<ref>{{Cite web |title=What Is Horizontal Integration? Definition and Examples |url=https://www.investopedia.com/terms/h/horizontalintegration.asp |access-date=2023-04-24 |website=Investopedia |language=en}}</ref> This means that with the merger, two firms would then be able to produce more revenue than one firm alone. It may also allow the horizontally integrated firm to engage in [[monopoly pricing]], which is disadvantageous to society as a whole and which may cause regulators to ban or constrain horizontal integration.<ref>{{Cite web|title = Horizontal Integration - What It Really Means For Marketing - Ardor Media Factory|url = https://www.ardormediafactory.com/horizontal-integration-marketing/|website = Ardor Media Factory|date = 19 February 2016|access-date = 2016-02-19|language = en-US}}</ref> Strategies around horizontal mergers often relate to revenue production, reducing market entrants or expanding into new markets.<ref>{{Cite web |title=What Is Horizontal Integration? Definition and Examples |url=https://www.investopedia.com/terms/h/horizontalintegration.asp |access-date=2023-04-24 |website=Investopedia |language=en}}</ref> The three forms of horizontal integration are mergers, acquisitions and internal expansion. <ref>{{Cite web |date=2023-01-23 |title=Physics-integrated Segmented Gaussian Process (SegGP) learning for cost-efficient training of die... |url=http://dx.doi.org/10.2514/6.2023-1283.vid |access-date=2023-04-24 |doi=10.2514/6.2023-1283.vid }}</ref>

'''[[Mergers and acquisitions|Mergers:]]'''

Mergers and acquisitions (M&A) refer to the consolidation of companies or assets through various financial transactions, such as mergers, acquisitions, and consolidations.<ref>{{Cite web |title=Mergers and Acquisitions: What's the Difference? |url=https://www.investopedia.com/ask/answers/021815/what-difference-between-merger-and-acquisition.asp |access-date=2023-04-24 |website=Investopedia |language=en}}</ref> M&A activities can be an effective way for companies to expand their operations, diversify their product or service offerings, and increase their market share.<ref>{{Cite web |title=Mergers and Acquisitions: What's the Difference? |url=https://www.investopedia.com/ask/answers/021815/what-difference-between-merger-and-acquisition.asp |access-date=2023-04-24 |website=Investopedia |language=en}}</ref> These activities can also lead to cost savings, increased efficiencies, and access to new technologies or markets.<ref>{{Cite web |title=Mergers & Acquisitions (M&A) |url=https://corporatefinanceinstitute.com/resources/valuation/mergers-acquisitions-ma/ |access-date=2023-04-24 |website=Corporate Finance Institute |language=en-US}}</ref>

Mergers involve the combination of two or more companies to form a new entity. This can occur through a stock-for-stock transaction, where shareholders of both companies receive shares in the new entity based on a predetermined exchange ratio.<ref>{{Cite web |title=What are mergers and acquisitions (M&A) |url=https://www.bdc.ca/en/articles-tools/entrepreneur-toolkit/templates-business-guides/glossary/mergers-and-acquisitions |access-date=2023-04-24 |website=BDC.ca |language=en}}</ref> Alternatively, a cash merger can occur, where one company purchases another using cash or other financial instruments.<ref>{{Cite web |title=What are mergers and acquisitions (M&A) |url=https://www.bdc.ca/en/articles-tools/entrepreneur-toolkit/templates-business-guides/glossary/mergers-and-acquisitions |access-date=2023-04-24 |website=BDC.ca |language=en}}</ref>

'''[[Mergers and acquisitions|Acquisitions:]]'''

Acquisitions, on the other hand, involve the purchase of one company by another. This can occur through a friendly acquisition, where the target company agrees to the acquisition and its shareholders receive compensation for their shares.<ref>{{Cite web |title=What are Mergers & Acquisitions (M&A): The Only Guide you Need |url=https://dealroom.net/faq/mergers-and-acquisitions-m-a-meaning |access-date=2023-04-24 |website=dealroom.net |language=en}}</ref> Alternatively, a hostile takeover can occur, where the acquiring company purchases a controlling stake in the target company without its approval.<ref>{{Cite web |title=What are Mergers & Acquisitions (M&A): The Only Guide you Need |url=https://dealroom.net/faq/mergers-and-acquisitions-m-a-meaning |access-date=2023-04-24 |website=dealroom.net |language=en}}</ref>

Consolidations refer to the combination of two or more companies to form a single entity without the creation of a new entity. This can occur through the merger of equals, where two companies of equal size and strength combine forces, or through the acquisition of a smaller company by a larger one.<ref>{{Cite web |title=Mergers and Acquisitions - M&A Types, Examples, Process |url=https://www.ansarada.com/mergers-acquisitions |access-date=2023-04-24 |website=ansarada}}</ref>

M&A activities can have a significant impact on various stakeholders, including shareholders, employees, customers, and suppliers. Shareholders can benefit from increased stock prices and dividends, while employees may face job losses or changes to their employment terms. Customers and suppliers may also be affected by changes to product or service offerings and supplier relationships.<ref>{{Cite web |title=Mergers and Acquisitions - M&A Types, Examples, Process |url=https://www.ansarada.com/mergers-acquisitions |access-date=2023-04-24 |website=ansarada}}</ref>

Regulatory bodies play an important role in overseeing M&A activities to ensure they do not violate antitrust laws and do not harm competition in the marketplace.<ref>{{Cite web |title=Mergers and Acquisitions - M&A Types, Examples, Process |url=https://www.ansarada.com/mergers-acquisitions |access-date=2023-04-24 |website=ansarada}}</ref> The approval of mergers and acquisitions may also require approval from government agencies or industry regulators.

Overall, mergers and acquisitions can be an effective strategy for companies to achieve growth and gain a competitive advantage. However, careful consideration of the potential benefits and drawbacks, as well as regulatory compliance, is essential to ensure a successful outcome for all stakeholders involved.<ref>{{Cite web |title=Mergers & Acquisitions {{!}} Financial Times |url=https://www.ft.com/mergers-acquisitions |access-date=2023-04-24 |website=www.ft.com |language=en-GB}}</ref>

'''Internal Expansion:'''

In addition to [[mergers and acquisitions]], companies can also pursue internal expansion through horizontal integration.<ref>{{Cite web |title=Internal growth - Business growth - Eduqas - GCSE Business Revision - Eduqas |url=https://www.bbc.co.uk/bitesize/guides/zkgqqp3/revision/2 |access-date=2023-04-24 |website=BBC Bitesize |language=en-GB}}</ref> This involves expanding their operations and product or service offerings within their existing industry by acquiring or developing new capabilities.

Horizontal integration can take various forms, including expanding through new product development, expanding geographically, or acquiring competitors or suppliers.<ref>{{Cite web |last=Nasrudin |first=Ahmad |date=2020-08-17 |title=Internal Growth: Methods, Advantages & Disadvantages |url=https://penpoin.com/internal-growth/ |access-date=2023-04-24 |website=Penpoin |language=en-US}}</ref> This strategy can enable companies to increase their market share and achieve economies of scale by leveraging existing resources and capabilities.<ref>{{Cite web |title=Internal Growth Rate (IGR): Definition, Uses, Formula and Example |url=https://www.investopedia.com/terms/i/internalgrowthrate.asp |access-date=2023-04-24 |website=Investopedia |language=en}}</ref>

Internal expansion through horizontal integration can also involve the integration of different business functions, such as production, marketing, and sales, to streamline operations and increase efficiency.<ref>{{Cite web |title=Internal Growth Rate (IGR): Definition, Uses, Formula and Example |url=https://www.investopedia.com/terms/i/internalgrowthrate.asp |access-date=2023-04-24 |website=Investopedia |language=en}}</ref> This can result in cost savings and improved profitability.<ref>{{Cite web |title=Internal Growth – Evaluation — Super Business Manager |url=https://www.superbusinessmanager.com/internal-growth-evaluation/ |access-date=2023-04-24 |language=en-US}}</ref>

However, there are potential drawbacks to internal expansion through horizontal integration.<ref>{{Cite web |title=Internal Growth – Evaluation — Super Business Manager |url=https://www.superbusinessmanager.com/internal-growth-evaluation/ |access-date=2023-04-24 |language=en-US}}</ref> It can be costly and time-consuming to develop new capabilities or expand into new markets, and there is a risk that these efforts may not be successful. Additionally, companies may face increased competition and regulatory scrutiny as they expand their operations.<ref>{{Cite web |title=How firms grow in size |url=https://www.economicshelp.org/blog/glossary/how-firms-grow-in-size/ |access-date=2023-04-24 |website=Economics Help |language=en-GB}}</ref>

Overall, internal expansion through horizontal integration can be a viable strategy for companies looking to achieve growth and gain a competitive advantage.<ref>{{Cite web |title=How firms grow in size |url=https://www.economicshelp.org/blog/glossary/how-firms-grow-in-size/ |access-date=2023-04-24 |website=Economics Help |language=en-GB}}</ref> However, it requires careful planning, execution, and management to ensure success and mitigate potential risks. Companies should also consider the potential benefits and drawbacks of this strategy compared to other growth strategies, such as mergers and acquisitions.<ref>{{Cite web |title=How firms grow in size |url=https://www.economicshelp.org/blog/glossary/how-firms-grow-in-size/ |access-date=2023-04-24 |website=Economics Help |language=en-GB}}</ref>

== Media terms ==
Media critics, such as [[Robert W. McChesney]], have noted that the current trend within the entertainment industry has been toward the increased [[concentration of media ownership]] into the hands of a smaller number of transmedia and transnational conglomerates.<ref name="rethinkingpp283">Thorburn, David and Jenkins, Henry (eds.)(2003). ''Rethinking Media Change: The Aesthetics of Transition''. Cambridge, Mass.: MIT Press. p. 283.</ref> Media is seen to amass in center where wealthy individuals have the ability to purchase such ventures (e.g., [[Rupert Murdoch]]).{{fact|date=June 2020}}

That emerged are new strategies for content development and distribution designed to increase the "synergy" between the different divisions of the same company. Studios seek content that can move fluidly across media channels.<ref>Thorburn, David and Jenkins, Henry (eds.)(2003). ''Rethinking Media Change: The Aesthetics of Transition''. Cambridge, Mass.: MIT Press. p. 284.</ref>

== Examples ==
An example of horizontal integration in the food industry was the [[Heinz]] and [[Kraft Foods]] merger. On 25 March 2015, Heinz and Kraft merged into one company, with the deal valued at $46 billion.<ref>{{Cite news|url=https://www.nytimes.com/2015/03/26/business/dealbook/kraft-and-heinz-to-merge.html |title=Kraft and Heinz to Merge in Deal Backed by Buffett and 3G Capital|newspaper=The New York Times|date=25 March 2015|last1=Gelles|first1=David}}</ref><ref name=heinz>{{Cite web|url=https://time.com/3770785/heinz-kraft-merger/|title = Why You Should Pay Attention to the Heinz/Kraft Merger| date=3 April 2015 }}</ref> Both produce processed food for the consumer market.

On 9 December 2013, [[Sysco]] agreed to acquire [[US Foods]] but on 24 June 2015, the federal judge ruled against the deal saying that such merger would control 75% of the U.S. foodservice industry and that will stifle competition.{{r|sysco}} It would have been horizontal integration, as both distribute food to restaurants, healthcare, and educational facilities.

On 16 November 2015, [[Marriott International]] announced that it would acquire [[Starwood Hotels and Resorts|Starwood]] for $13.6 billion, creating the world's largest hotel chain.<ref>{{cite news |url=https://www.bizjournals.com/washington/morning_call/2015/11/marriott-international-to-acquire-starwood-hotels.html |title=Marriott International to acquire Starwood Hotels & Resorts Worldwide in $12.2 billion deal |last=Nycz-Conner |first=Jennifer |work=[[American City Business Journals]] |date=16 November 2015}}</ref> The acquisition was finalized on 23 September 2016.<ref>{{cite news |url=https://www.usatoday.com/story/travel/roadwarriorvoices/2016/09/23/marriott-starwood-merger-complete-and-loyal-customers-get-reciprocal-benefits/90885318/ |last=Trejos |first=Nancy |title=Marriott, Starwood merger is complete, loyalty programs will reciprocate |work=USA Today|date=23 September 2016 |access-date=24 September 2016}}</ref>

The AB-Inbev acquisition of SAB Miller for $107 Billion, which completed in 2016, is one of the biggest deals of all time.<ref>{{Cite web |url=https://www.forbes.com/sites/taranurin/2016/10/10/its-final-ab-inbev-closes-on-deal-to-buy-sabmiller/ |title=It's Final: AB InBev Closes on Deal to Buy SABMiller|website=[[Forbes]] }}</ref>

On 1 November 2017, [[Centurylink]] bought [[Level 3 Communications]] for $34 billion, and incorporated Level 3 as part of Centurylink.{{fact|date=June 2024}}

On 14 December 2017, [[The Walt Disney Company]] announced that they were to [[Acquisition of 21st Century Fox by Disney|acquire]] [[21st Century Fox]] for $52.4 billion in stock, which included the famed [[20th Century Studios|20th Century Fox]] [[film studio]], [[FX (TV channel)|FX Networks]], and a 30% stake in [[Hulu]]. Both companies produced and distributed films and television series, as well as each owning a 30% stake in Hulu.<ref name="st">{{cite news|last=Nolter|first=Chris|title=Disney Acquires Most of Fox's Assets in Blockbuster $52.4 Billion Stock Deal |url=https://www.thestreet.com/story/14420470/1/disney-acquires-fox-assets-blockbuster-deal.html |work=[[TheStreet.com]] |date=14 December 2017 |access-date=15 December 2017|url-status=live|archive-url=https://web.archive.org/web/20171215000518/https://www.thestreet.com/story/14420470/1/disney-acquires-fox-assets-blockbuster-deal.html|archive-date=15 December 2017}}</ref> Due to Disney's ownership of [[American Broadcasting Company|ABC]], the acquisition did not include the [[Fox Broadcasting Company]], as the [[Federal Communications Commission]]'s rules prohibited a single company from owning multiple of the four major broadcast networks; the Fox Broadcasting Company was instead planned to be spun-off into a new company tentatively named "New Fox".<ref>{{Cite news |url=https://variety.com/2017/politics/news/disney-fox-antitrust-1202631193/ |title=A Disney-Fox Deal Would Land at an Uncertain Moment for DOJ Review of Big Media |last=Johnson |first=Ted |date=December 5, 2017 |work=Variety |access-date=December 15, 2017 |url-status=live |archive-url=https://web.archive.org/web/20171215111505/http://variety.com/2017/politics/news/disney-fox-antitrust-1202631193/ |archive-date=December 15, 2017}}</ref> The acquisition closed on March 20, 2019, for an [[Acquisition of 21st Century Fox by Disney#Bidding war between Disney and Comcast (May–July 2018)|increased cash-and-stock offer]] of $71.3 billion;<ref>{{Cite web |url=https://www.hollywoodreporter.com/news/disney-closes-fox-deal-creating-global-content-powerhouse-1174498 |title=Disney Closes $71.3 Billion Fox Deal, Creating Global Content Powerhouse |last1=Szalai |first1=Georg |last2=Bond |first2=Paul |date=March 20, 2019 |website=The Hollywood Reporter |url-status=live |archive-url=https://web.archive.org/web/20190320064742/https://www.hollywoodreporter.com/news/disney-closes-fox-deal-creating-global-content-powerhouse-1174498 |archive-date=March 20, 2019 |access-date=March 20, 2019}}</ref> the assets that were not acquired by Disney, including the Fox Broadcasting Company, were spun-off into [[Fox Corporation]].<ref>{{Cite web |url=https://variety.com/2019/biz/news/fox-corporation-debut-disney-murdoch-1203165925/ |title=Fox Corporation Emerges as Standalone Entity, Paul Ryan Joins Board |last1=Littleton |first1=Cynthia |last2=Steinberg |first2=Brian |date=March 19, 2019 |website=Variety |url-status=live |archive-url=https://web.archive.org/web/20190319121738/https://variety.com/2019/biz/news/fox-corporation-debut-disney-murdoch-1203165925/ |archive-date=March 19, 2019 |access-date=March 19, 2019}}</ref>

== See also ==
{{div col|colwidth=22em}}
* [[Economies of scale]]
* [[Horizontal market]]
* [[List of economics topics]]
* [[List of management topics]]
* [[List of marketing topics]]
* [[Monopoly]]
* [[Strategic management]]
* [[Target market]]
* [[Vertical integration]]
{{div col end}}

== References ==
{{reflist|refs=
<ref name="b1">{{cite web|title=Horizontal Integration Definition|url=http://www.economicshelp.org/blog/glossary/horizontal-integration/|publisher=economicshelp.org|access-date=5 February 2016}}</ref>

<ref name="b2">{{cite web|title=Definition of Horizontal Integration in a Supply Chain|url=http://smallbusiness.chron.com/definition-horizontal-integration-supply-chain-34736.html|publisher=smallbusiness.chron.com|access-date=5 February 2016}}</ref>

<ref name="b3">{{cite web|title=horizontal integration|url=http://www.businessdictionary.com/definition/horizontal-integration.html|publisher=businessdictionary.com|access-date=5 February 2016|archive-date=23 December 2007|archive-url=https://web.archive.org/web/20071223135257/http://www.businessdictionary.com/definition/horizontal-integration.html|url-status=dead}}</ref>

<ref name="sysco">{{cite news|title=Sysco Ends Plans to Merge With US Foods|newspaper=Wall Street Journal|date=July 2015|url=https://www.wsj.com/articles/sysco-walks-away-from-us-foods-merger-1435580019|publisher=WSJ|access-date=5 February 2016|last1=Gasparro|first1=Annie}}</ref>
}}

[[Category:Market structure]]
[[Category:Business terms]]
[[Category:Strategic management]]
[[Category:Marketing strategy]]
[[Category:Mergers and acquisitions]]