Question

Horizontal integration and vertical integration are two different approaches to growth within a company. With horizontal integration a company essentially looks to gain market share by acquiring another company that does the same thing or produces the same item. An example of this is if a tshirt company purchases another t-shirt factory so that they can increase their production volume. Vertical integration occurs when a company that operates within one portion of the supply chain seeks to gain more control over the process and acquires another company that is in the chain. An example of this is if the company that owned the tshirt factory then purchased the store that distributed the shirts. The decision of which approach to use depends on what the desired outcome is. If a company is seeking to reduce variable costs and can afford to increase fixed costs initially then vertical integration may be the best approach as they can then control more of the ongoing expenses. If the desire is to increase volume or production levels then horizontal integration may be the best approach as there are benefits through economies of scale. An additional benefit to horizontal integration that may result is increased market power due to larger holdings.

Please respond in 100-150 words

Answer 1

Horizontal integration is to acquire a similar company in the same industry of our business where as vertical integration is acquiring the supply chain in our business.

Horizontal integration approach is used when we want to increase the pridproduc of goods and services by economic of sales, so at that time we will try to acquire a similar company in the market.

Vertical integration approach is used to increase the competitiveness in the market by increasing the efficiency of the company by reducing the costs.

Horizontal integration will less control as they have to depend on other company also where as in vertical Integration we will have total control as we will be supplier of the chain.

In both the approach we gain efficiency along with the flexibility of production of goods.