Horizontal Integration
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Horizontal Integration
A diagram illustrating horizontal integration and contrasting it with vertical integration.

Horizontal integration is the process of a company increasing production of goods or services at the same part of the supply chain. A company may do this via internal expansion, acquisition or merger.[1][2][3]

The process can lead to monopoly if a company captures the vast majority of the market for that product or service.[3]

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

Horizontal 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 providers who cooperate.[4] Such an alliance relates to competition.

Aspects of horizontal integration

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. 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.[5]

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.[6] Media is seen to amass in center where wealthy individuals have the ability to purchase such ventures (e.g., Rupert Murdoch).

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.[7]

Examples

An example of horizontal integration in the food industry was the Heinz and Kraft Foods merger. On March 25, 2015, Heinz and Kraft merged into one company, the deal valued at $46 Billion.[8][9] Both produce processed food for the consumer market.

On December 9, 2013, Sysco agreed to acquire US Foods but on June 24, 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.[10] It would have been horizontal integration, as both distribute food to restaurants, healthcare, and educational facilities.

On November 16, 2015, Marriott International announced that it would purchase Starwood Hotels for $13.6 billion, creating the world's largest hotel chain once the deal closed.[11] The merger was finalized on September 23, 2016.[12]

AB-Inbev acquisition of SAB Miller for $107 Billion which completed in 2016, is one of the biggest deals of all time.[13]

On November 1, 2017, Centurylink bought Level 3 Communications for $34 billion, and incorporated Level 3 as part of Centurylink.

See also

References

  1. ^ "Horizontal Integration Definition". economicshelp.org. Retrieved 2016. 
  2. ^ "Definition of Horizontal Integration in a Supply Chain". smallbusiness.chron.com. Retrieved 2016. 
  3. ^ a b "horizontal integration". businessdictionary.com. Retrieved 2016. 
  4. ^ Raue, J.S. & Wieland, A. (2015), The interplay of different types of governance in horizontal cooperations: a view on logistics service providers. The International Journal of Logistics Management, Vol. 26, No. 2.
  5. ^ "Horizontal Integration - What It Really Means For Marketing - Ardor Media Factory". Ardor Media Factory. Retrieved . 
  6. ^ Thorburn, David and Jenkins, Henry (eds)(2002) Rethinking Media Change, MIT Press, Cambridge, Massachusetts, pp.283.
  7. ^ Thorburn, David and Jenkins, Henry (eds)(2003) Rethinking Media Change, MIT Press, Cambridge, Massachusetts, pp.284.
  8. ^ https://www.nytimes.com/2015/03/26/business/dealbook/kraft-and-heinz-to-merge.html?_r=0
  9. ^ http://time.com/3770785/heinz-kraft-merger/
  10. ^ "Sysco Ends Plans to Merge With US Foods". WSJ. Retrieved 2016. 
  11. ^ Nycz-Conner, Jennifer (November 16, 2015). "Marriott International to acquire Starwood Hotels & Resorts Worldwide in $12.2 billion deal". Washington Business Journal. Retrieved 2015. 
  12. ^ Trejos, Nancy (September 23, 2016). "Marriott, Starwood merger is complete, loyalty programs will reciprocate". USA Today. Retrieved 2016. 
  13. ^ https://www.forbes.com/sites/taranurin/2016/10/10/its-final-ab-inbev-closes-on-deal-to-buy-sabmiller/#1aa8b829432c

  This article uses material from the Wikipedia page available here. It is released under the Creative Commons Attribution-Share-Alike License 3.0.

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