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What is the difference between horizontal integration and vertical integration?

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posted Jul 11 by Prachi

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A horizontal integration consists of companies that acquire a similar company in the same industry, while a vertical integration consists of companies that acquire a company that operates either before or after the acquiring company in the production process.

When a company wishes to grow through a horizontal integration, it is seeking to increase its size, diversify its product or service, achieve economies of scale, reduce competition, or gain access to new customers or markets. To do this, one company acquires another company of similar size and operations, in the same industry. Some great examples of a horizontal integration are Marriott's 2016 acquisition of Sheraton (Hospitality industry), Anheuser-Busch InBev's (AB InBev) 2016 acquisition of SABMiller (Beer companies), AstraZeneca's 2015 acquisition of ZS Pharma (Biotech), Facebook's 2012 acquisition of Instagram (Social Media), and Disney's 2006 acquisition of Pixar (Entertainment Media).

When it comes to a vertical integration, a company can either integrate forward in a forward integration or backward in a backward integration. A backward integration occurs when a company decides to own another company that makes an input product to the acquiring company's product. An example of this is if a car manufacturer acquires a tire manufacturing company. A forward integration occurs when a company decides to take control of the post-production process. An example of this is if the same car manufacturer acquires an automotive dealership.

answer Jul 12 by Purabi Sarkar
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