Daily Archives2021 October 14

Horizontal Expansion Overview & Examples What is Horizontal Expansion?

• 14 October 2021
• by: Admin
• in: Forex Trading
• note: no comments

The cause of integration is to strengthen the production-distribution chain and to minimize the cost and wastage of products at various levels. The integration also enables the company to keep upstream and downstream profits and eliminate intermediaries. The merger of two or more firms, which are engaged in the same line of business and their activity level is also same; then this is known as Horizontal Integration. The product may include complementary product, by-product or any other related product, competitive product or entering into the product’s repairs, services, and maintenance section. A firm is said to possess ownership of the target firm once it purchases either all or most of the shares of that target firm.

This is in contrast to vertical integration, where firms expand into upstream or downstream activities, which are at different stages of production. Horizontal integration is the merger of two or more companies that occupy similar levels in the production supply chain. The process is also known as lateral integration and is the opposite of vertical integration whereby companies that are at different stages in the production supply chain merge. If there are several horizontal integration mergers within the same industry that concentrate market share with a small number of companies, this is considered an oligopoly. If the resulting market share is largely held by one entity, this is considered a monopoly.

Horizontal integration examples (companies)

If the merger deal is completed between JetBlue and Spirit after regulatory approval, their operations will be combined to achieve expected synergies of between $600 million and $700 million. According to an SEC Form 8-K company filing by JetBlue on July 28, 2002, if approved, the deal is expected to close in 2023 or 2024. In 2006, CVS announced that it had agreed to acquire 700 drugstores trading under the names Osco Drug and Sav-On Drug from Albertsons. Already the largest drug store chain in the country at the time of the acquisition, the extra stores acquired in the deal gave CVS control over 6,000 drug stores across 42 states and the District ofColumbia. Horizontal integration is not illegal, but the competition commission has the power to prevent deals from going through if it deems the deal would create a monopoly, or significant market power.

One of the major problems with horizontal integration is that it can result in a monopoly if done in a way that won’t allow for competition. However, many companies have been saved through horizontal integration and rolled into a larger, more successful company. The aim of Sun pharma for this acquisition was to get better reach to emerging markets and gain a stronghold in the domestic market. So, the combined entity of both companies emerged as a global market of specialty and generic products. The prices of oil falling and the global competitive pressures engineered the horizontal integration between Exxon and Mobil. This is one of the well-known horizontal integration examples in the oil and gas sector.

Horizontal Integration Example

An M&A process is known as horizontal or vertical integration, depending on the acquisition type and business strategy. Although horizontal integration can take place between industries, it usually occurs between two competitors – generally because it creates greater efficiencies. In turn, this can potentially result in a monopoly if the two firms are large enough. For instance, Boeing and Airbus both manufacture airplanes – owning a combined 99 percent market share. In microeconomics and strategic management, the term horizontal integration describes a type of ownership and control. It is a strategy used by a business or corporation that seeks to sell a type of product in numerous markets.

• The company often wants to enhance its existing product or get a larger share of the market.
• Having explained various aspects of horizontal integration, it is also important to understand what vertical integration is.
• If an industry is outside the regulator’s focus, horizontal integrations are more likely to happen.
• On the other hand, horizontal integration strives to eliminate competitors, grow in market size, and create economies of scale.
• Hostile takeover is the acquisition of the company, which does not want to be acquired.
• The horizontal integration of Arcelor-Mittal resulted in creating a massive global manufacturer that produced 10% of the world’s total steel, becoming the world’s largest steel producer.

We know ExxonMobil as one company today, but that entity originates from the 1998 merger between Exxon and Mobil – two separate companies in the oil and gas industry. At the time, the merger was said to be worth over $73 billion – making it the third most valuable company in the world. The deal became one of necessity as a new entrant, Jio, took more and more market share away – eventually becoming the market leader in 2019. This squeezed profit margins in the industry and all but forced Vodafone and Idea to merge. In a merger, both companies are striving to become a larger presence in their existing market. Most mergers are of similar firms, where integration of the two companies may be seamless due to the similarities between what the two former companies used to do.

Demerits Of Horizontal Integration Strategy

Horizontal integration is used by horizontally integrated companies to create economies of scale and cross-sell to each other’s customers. Hence, using this strategy, means competitors in the same market are combining their assets and operations which can cause the creation of a monopoly or oligopoly. Both horizontal integration and vertical integration are the practice of a company expanding its current operations. Horizontal integration occurs when a company aims to remain within its current part of the supply chain. The company often wants to enhance its existing product or get a larger share of the market. It is a tactic used by most of the companies to expand its size and achieve economies of scale due to increased production level.

The merger is expected to develop the new Bank of Baroda as a competitive bank at a global level by gaining advantages or benefits of economies of scale, subsidiaries, synergies for the network, and deposits of low-cost. This merger also aimed at improving customer base, operational efficiency, market reach, and capacity to provide a much wider range of products or services to customers. A business can horizontally integrate by acquiring another business, merging with another business, or internally expanding its operations.