Vertical vs. Horizontal Integration for Competition

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Table of Contents

Introduction
Vertical Integration
Horizontal Integration
Conclusion
References

Introduction

Competition in the corporate world has been a never-ending rat race. Businesses all over the world are in a constant bid to expand the whole or part of their cycle. Growth, however, is not a walk in the park for any business. Consideration upon consideration must be made to ensure a smooth transition for change, as it does not come without its fair share of inconvenience. Therein lies the real conundrum: choosing the way and means for growth. In this case, understanding the ins and outs of vertical and horizontal integration as a way of growth is necessary (Competitive advantage, 2014).

Vertical Integration

Vertical integration is the process where different production and distribution stages of a product or service are managed by one company to increase its popularity (Vertical Integration, 2014). There are three types of vertical integration. First is the forward integration, which manifests when a business entity attempts to control aspects that occur after production, such as the supply network. As a case in point, a textile company that opens a chain of clothing shops is an ideal example of forwarding integration. Conversely, when a business unit seeks to take charge of processes taking place before production and distribution, it portrays the second kind of vertical integration, referred to as backward integration.

One of the examples of backward integration, that can be mentioned, is a clothing retailer company that sets up a textile factory. Lastly, a combination of the aforementioned types of vertical integration spawns balanced integration. Needless to say, balanced integration describes a scenario where a company controls all the activities from production to supply. In the oil industry, Shell is a quintessence of balanced integration.

Regulating production costs and determining product quality are two of the chief utilities of vertical integration. Be that as it may, flexibility and resilience are compromised.

Horizontal Integration

Horizontal integration, also referred to as lateral integration, describes the merger of separate business entities or the acquisition of one by another (What is Vertical and Horizontal Integration? 2011). Mergers involve combining two distinct businesses by purchase acquisition or by putting resources together. Acquisition refers to the friendly or hostile takeover of the business by purchase or exchange of stock (Horizontal Integration, 1999).

Lateral integrations are principally orchestrated to increase a company’s market take off. As a case in history, Standard Oil’s acquisition of forty refineries in the past century significantly increased its market apportionment and likewise its monopoly.

Notable advantages of lateral integration include penetration into previously untapped markets, neutralization of competition by joining forces, and the growth of a company in a cost-efficient way. Integrating horizontally is cheaper than building from the ground up. Lateral integrations fall victim to certain consumer perception stigmas. Companies that acquire other companies are often perceived as insatiable corporate domineers that are out to sabotage competition and secure monopoly in their given field. Indubitably, such a view of consumers has a negative impact on sales (Moore, 2014).

Conclusion

It is worth noting that from the onset of the 21^st century, lateral integration has gained widespread popularity as a convenient means for growth. Vertical integration is still a favored method with oil companies. Over and above, both approaches to corporate growth are still viable depending on a myriad of factors unique to specific corporations (Vertical Integration, 2014).