Horizontal Integration Strategy (with examples)

When a business acquires business or operation of a competitor or buyer or supplier or seller then the strategy in which they engaged is considered as integration.

Different companies or organizations look for growth opportunities by adopting integration strategy i.e. vertical or horizontal integration with other organizations or companies.


Horizontal Integration strategy is considered as a process or a strategy in which a company seeks to increase the production of its products or services at a similar part or area of the supply chain. This is considered as one of the renowned growth strategies related to a company’s expansion in which the company enhances other activities of business at a similar level of the value chain and further expects an increased control or ownership over its competitors.

In a simple way, Horizontal integration is known as the process of procuring a commercial entity that is functioning in the same sector or level. In this strategy, a company takes hold through acquisition or merger or takeover on other firms which is in the value chain of the same industry.  Horizontal integration is also termed as lateral integration as apart from external expansion, a company can also look for internal expansion by reinvesting operating profits. Whenever a firm wants to expand its growth through the strategy of horizontal integration, it prefers to acquire the same firms in a similar industry into which it is operating.


A Horizontal integration strategy is adopted by companies to fortify their space in the industry. An organization that uses this strategy generally acquires or mergers other organization that is indulged in a similar stage of production.

For example, if a restaurant is looking for expansion in another location then it may prefer to merge or acquire another restaurant in that location rather than to start a new branch there as another restaurant is already established in that location and has a strong customer base.

The Working Mechanism Of Horizontal Integration

The horizontal integration process involves acquiring, merging, or taking over a company by another company and in which both companies are in the same industry and a similar stage of production. A merger happens when two independent firms of the same size join to form a new joint firm or entity.

The acquisition is related to buying a company by another one. Whereas, the takeover is considered when a firm acquires another firm that is not willing to be acquired or purchased.

Horizontal integration of a manufacturing concern can be viewed in the below diagram:

Horizontal integration through Merger

Horizontal integration through Acquisition

Horizontal integration strategy may be effective in the following scenario:

  • The company has competition in a growing industry.
  • The company has those competencies, capabilities, resources, or skills that its competitors either don’t have or have a shortage of them.
  • There is a significant effect of economies of scale.
  • Sufficient resources are available in the company for managing merger and acquisition.

Purpose Of Horizontal Integration

The aim of adopting a horizontal integration strategy by a company is to increase its size or market share, gain economies of scale, explore new markets, raise product differentiation, or reduce competition.

So, this strategy is considered as a competitive strategy of business that can be utilized to expand the current market of a company or enter new potential markets, raise the overall market power of it, enhance the product or service offerings, revenue increase, etc.

Merits Of Horizontal Integration

Businesses adopt horizontal integration as this business strategy supports organizations in strengthening their position in the competitive market of its industry.  If horizontal integration is done in the right way then it can facilitate a company with lots of competitive advantages that may help the company in increasing its market position and to increase its success ratio within its industry. The main motivation to implement this strategy is for-profit increase. The various merits or advantages associated with Horizontal strategy for a firm are as under:

  • Economies of scale

    One of the main benefits of the horizontal integration strategy includes providing an opportunity for firms to create superior economies of scale. An economy of scale is said to be achieved once a firm is successful in increasing its production level and also, able to cut output costs or enhance revenue in proportion. As the strategy requires combining two firms into one new big firm and this new firm is supposed to develop more goods and services in a more effective and efficient way; so, this ultimately results in the economy of scale which is greater than the earlier one. By achieving this, the firm or company can reduce its cost structure and thus, able to raise the overall profitability in the future.

  • Increased product differentiation

    The benefit of horizontal integration also includes the potential it gives to a firm to enhance its customers by offering a much wider range of products or services. Although both firms that combine using the strategy; are in similar production stage and industry, each firm generally offers different features of goods or services to their customers. By combining two firms into a single new large firm gives an advantage to a new firm to enhance its product differentiation by integrating the product or service offerings of each separate firm. This facilitates a competitive advantage for the firm.

  • Economies of scope

    A horizontal integration strategy also permits companies to achieve economies of scope. Cost redundancy is removed due to resource sharing by companies. It is comparatively less costly to provide a similar product from different locations than to present a wholly new product range. The company is able to provide a diversified product range and hence increase the economies of scope.

  • Higher efficiency by increased market power

    The next unique advantage of the strategy is that it supports a firm in increasing its market hold or power. Once two firms form a single larger firm through horizontal integration, the outcome i.e. larger firms get increased power of its distributors and suppliers in the market. More products or services are generated due to together working of firms. Once the size of the firm grows then the horizontal integration becomes much profitable. The development cost is less as compared to total revenue. This gives an advantage to the firm to increase its profits and save money. Ultimately, with higher efficiency, the firm is able to strengthen its position over distributors and suppliers.

  • Reduced competition

    One of the most lucrative benefits that horizontal integration provides a business is a decrease in competition with the industry and market of a firm. This strategy facilitates the firm in reducing industry competition by diminishing extra capacity in the industry. Through horizontal merger or acquisition, the firm combines with another rivalry firm or competitor firm and this helps in reducing the competition of the firm within the industry. Also, reduced competition enhances pricing power and market share.

  • International or foreign trade

    By integrating horizontally, the firm is able to get into outside business instantly. This eliminates the cost of foreign or international trade as it allows the firm to both manage and present the product or service in the market.

  • Access to new markets

    Horizontal integration also allows firms to enhance their existing customers and access to new markets that companies were unable to capture before acquisition or merger. This happens once a firm either merges or acquires another firm that offers similar products or services but serves a different market area or region. Combining two such firms is helpful in providing access to the new markets to the new firm. These markets were already captured by both individual firms.

Demerits Of Horizontal Integration Strategy

Horizontal integration strategy implementation also comes up with certain challenges and demerits or drawbacks that a firm needs to be aware of in order to do proper preparation for the strategy process and to ensure the success of the process.

The following are the disadvantages or demerits of Horizontal integration:

  • Monopoly creation

    One of the biggest demerits of horizontal integration is the higher chances of monopoly creation. The merged firm may have monopoly powers because of the large size of the merged fiSm. This could result in the exploitation of customers as the firm may charge a higher price from customers for products or services. Also, the quality of products or services may also hamper that ultimately results in customer suffering.

  • Reduced flexibility

    Combining two firms develop a large firm that is both hard to manage and less flexible in market innovations. Combining two firms may create differences in opinions of managers and this may lead to unexpected inefficiencies. Moreover, limitations may occur in the ability of the firm to introduce new products or services in the market.
  • The rise in the workload

    In horizontal integration, a firm gets involved in merging or acquiring the competing firm and this increases the overall workload of the firm’s top management that results in less efficiency and effectiveness.

  • Issues related to Anti-trust

    Industry concentration may rise due to the increased market share of the company that acquires a competitor firm. This may develop issues related to anti-trust.

  • Less value creation

     Sometimes it happens that firms are unable to achieve the desired results they expected from adopting a horizontal integration strategy. So in the case when a company falls to gain the anticipated synergies of acquisition or merger then it may tough to maintain the expected value to be gained from the strategy of horizontal integration. In a few cases, a firm’s overall value diminishes due to the incapability to understand the anticipated synergies. This may also lead to shareholder’s criticism of the poor usage of resources of the organization.
  • Regulatory investigation

    One drawback of horizontal integration is the strict regulatory investigation from regulatory bodies who closely investigate the horizontal integrations to prevent monopoly power that a firm may gain after integration as it results in a lack of competition.
  • Synergy achieving issue

    Once the horizontal integration is done, a demerit that occurs is synergy achievement between the combined firms. It may not be possible that positive synergies always yield from the integration and value addition as per expectation. Even negative synergies can be the outcome and the value of the whole business may reduce. Possibilities are there of overlapping of personnel or products that can be expensive. Also, developing a combined corporate culture may be difficult or difficulty in running the new firm may occur due to the size of the new firm.

Types Of Horizontal Integration

The different types or forms of horizontal integration are acquisitions, mergers, and takeovers. Let’s have a look at each of these with real-life examples of different companies.

A) Horizontal Mergers

A horizontal merger happens once two companies combined that operate and compete in a similar or same type of business activity. In other words, when a company either purchases the competitor company or both agree to join to make a new combined organization; then it is called a merger.

Mergers mostly occur in highly intensive industries where competition remains in fewer firms and favorable synergies are there. As both companies compete with each other on the same level of the supply or value chain, developing economies of scale is possible by combining their operations.

Advantages of the horizontal merger

  • Achieving economies of scale by lowering the total cost of business.
  • A wide range of products can be offered to the customers by new firms effectively and without investing in new resources.
  • Market share can be increased in the long run by firms.
  • Increased efficiency by reducing the total cost of operations.
  • Market benefits due to reduced competition.

Real-life examples of horizontal integration through mergers

1. Vijaya Bank and Dena Bank got merged in Bank of Baroda

In 2019, Bank of Baroda (BoB) has acquired 3rd position in India’s largest bank after its merger with Dena Bank and Vijaya Bank.  The merged entity became India’s 3rd largest lender as the total business has reached to approx. Rs. 15 trillion. This became the very first three-way consolidation of Indian banks.

A total of 1777 branches of Dena Bank and 2135 of Vijaya Bank got merged with Bank of Baroda. The merged entity consists of about 9500 branches as both merged banks will facilitate Bank of Baroda in increasing its reach in southern, western, and north-eastern areas.

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.

2. The merger of HP (Hewlett-Packard) with Compaq

In 2011, the well-known horizontal merger of Hewlett-Packard and Compaq took place. The structure of this merger was stock-to-stock including exchange ratio i.e. 0.63 of HP share on every Compaq share. It was valued at approx. the US $25 billion. The new company had acquired a 64% share of HP and a 36% share of Compaq.

The logical purpose or rationale of this horizontal merger was as follows

  • To battle with the competition from IBM and Dell (within industry competition)
  • Cost-cutting by approx. the US $3 billion on an annual basis
  • Sharing of complementary resources and to increase business segments
  • Providing a quick response to the demands of customers in the industry
  • Face and meet the shrinking market challenge

This merger resulted in a global technology leader worth the US $87 billion that offers the most extensive IT products and services for customers and businesses. The new Hewlett-Packard became a global player of top-level in access devices, IT services, printers, and imaging, etc. Synergies related to revenue and costs were made to create considerable value for shareholders and provide opportunities for new growth.

3. The merger of Adidas with Reebok
  • One real example of the horizontal merger is Adidas with Reebok (the US group). This merger could improve the presence of Adidas in the North American market that accounts for nearly 50% sales of global sporting goods. The merger of Adidas and Reebok was mainly aimed at transferring intangible resources like relationships and knowledge.
  • To retain the identity and focus on core competencies of Adidas, few areas such as R&D (Research & Development) centers were managed by both companies independently. Also, different other areas that had no integration benefit were tried to keep separate.
  • Both companies gained learning from the R&D expertise of each other. State-of-the-art technologies were developed by Adidas and production innovations were held by Reebok. Also, through the merger, both companies were able to focus on new areas of sports.
  • Both took benefits from the strong distribution network of each other i.e. Reebok from the global network of Adidas and Adidas from Reebok’s network in America.
  • Another aim of the merger was to club the supply chain of both firms. So, the horizontal merger strategy provided significant growth in revenue and profit. Also, it enabled cost savings too.
4. The merger of Vodafone and Idea

The two telecommunication giants i.e. Vodafone India and Idea Cellular merged in August 2018 to form India’s largest telecommunication company to own approx. 35% share of the market. Both companies are into the telecommunication business and offer services to customers such as phone, mobile, internet facility, data, etc. This merger is one of the famous examples of horizontal integration.

Reasons behind the merger

  • The merger became necessary as the emergence of Reliance Jio that took much more market share and became famous due to its competitive and low-cost offerings. This had slow-down the profit margins for other telecom companies in the industry and compelled the merging of Vodafone and Idea.
  • The enterprise value of the combined entity is $23.2 billion. Both Vodafone and Idea control the new identity jointly and on an equal basis. The objective of the merger is to hold a leadership position in terms of total customers in India. Through this merger, both Idea and Vodafone India are able to gain a strong position in the industry by cost-cutting and competing with Reliance Jio in an effective way.

Post-merger market share, synergies, and market rank of the new entity

Through the combined resources, the new entity could serve a huge customer base with comparatively fewer assets. The cost savings occurred from employees, equipment, operations, and other aspects resulted in an annual synergy of approx. $2 Billion for the newly merged entity.

One purpose of such a merger was to strengthen the leadership of Idea in rural and semi-urban telecom markets and also, to make the strong presence of Vodafone in metro cities in India to offer services to customers at a pan-India basis.

B) Horizontal integration through Acquisition

An acquisition happens when a firm buys either all shares or most of the shares of another firm in order to have control of that firm. An acquisition takes place once the buying firm obtains or purchases over 50% ownership of another firm. Doing such purchase of over 50% stock and other assets of the target firm provides the power to the acquirer firm to take decisions related to the assets that are newly acquired and that too without the consent to shareholders of the firm. The acquisition is considered as a common horizontal strategy that businesses adopt and may happen with the approval or permission of the target firm.

Advantages of the acquisition include

  • Less time is required for accessing the target market.
  • Removes entry barriers.
  • Controls the rise of overall competitors.
Acquisition process

The steps in process of Acquisition can be viewed in the below flow chart

Examples of Horizontal integration through acquisition

1. Acquisition of Red Hat by IBM

The renowned company IBM acquired Red Hat in July 2019 which is an American multinational open-source software company. Red Hat offers open-source related software products to corporate. This $34 billion deal is considered as IBM’s largest deal so far and also, one of the biggest technology acquisitions in history. Under this deal, the Red Hat is to function as a unit inside the Cloud and cognitive software segment of IBM.

The rationale behind the acquisition

The main aim of this acquisition was to position IBM as a cloud power. Another reason is to invest in open source. This deal was supposed to make IBM a top hybrid cloud provider in the world. Through this deal, Red Hat supported IBM to enlarge its customer base of organizations that are still away from cloud computing.

2. Acquisition of Whatsapp by Facebook

Facebook Inc’s acquired Whatsapp which is a mobile messaging service company in $19 billion. This is considered as the biggest acquisition that a technology company did so far.

The rationale behind the acquisition

  • Mobile connectivity: Whatsapp is considered as the right company for achieving the ambitious objectives of Facebook as it gives a lot of importance to mobile communication. The deal was aimed at facilitating Facebook’s plans by introducing utility and connectivity worldwide. The own messenger of Facebook was not developed as expected, so they decided to take Whatsapp for moving ahead with mobile communication. Moreover, Whatsapp is dominating the market of mobile in different countries throughout the world as its replacing SMS communication.   So, this will be a huge benefit for Facebook to expand its market reach.
  • Growth in the number of users: Another reason behind acquiring Whatsaap is its rapid growth in the number of users. Within 4 years, the company is able to reach 419 million customers and became the fastest-growing company worldwide. Wherein, Facebook recorded 145 million customers in the first 4 years. Every day, an average of 1 million users connects with Whatsapp as estimated.
  • Young users: Whatsapp has become a primary platform for communication for many audiences and especially the young ones. So, it was quite challenging for Facebook, and for substantial growth, it was required to maintain a younger audience in the portfolio of users.
3. Facebook and Instagram acquisition

The acquisition of Instagram by Facebook in the year 2012 is considered one of the biggest deals i.e. of approx. $1 billion and one of the most highlighted examples of horizontal integration. Both companies are indulged in the same business industry of social media. Also, they shared similar business types like photo-sharing services and the same production stages in these services.

The rationale behind the acquisition

Through this horizontal integration strategy, Facebook aimed at strengthening its position in the social sharing area and found that acquiring Instagram is the best strategy to fulfill this as it was an excellent opportunity to enhance its market share by new audience access and reduce competition. Though Facebook has acquired Instagram, still Instagram has its own independent social media platform.

4. Acquisition of Ranbaxy by Sun Pharma

The Sun Pharma company had acquired Ranbaxy in $4.0 billion in the year 2014 and all this deal was in shares i.e. for every 5 shares held by Ranbaxy of Sun pharma, Ranbaxy shareholders were about to receive 4 shares.

The total turnover of Sun Pharma stood at Rs. 11,326 crores at the time of acquisition and the turnover of Ranbaxy was Rs. 12,410 crore. The main thing in this acquisition is that a company of a smaller size had acquired a larger size company.

Reasons for acquisition

The aim of Sun pharma for this acquisition was to get better reach to emerging markets and gain a stronghold in the domestic market. Also, to increase the product portfolio was another reason as both companies had their own area of expertise such as Sun pharma is a major specialist pharma organization and recognized at a global level while Ranbaxy was famous in the generic segment and presence of same globally. So, the combined entity of both companies emerged as a global market of specialty and generic products.

This acquisition had strengthened the market position of Sun pharma is every aspect such as there was an increase in its net sales, gross profit, net profit, etc. Similarly, the fixed assets got doubles and there was an increase in cash balances too.

5. Acquisition of TATA Steel and Corus

India’s one of the leading steel producer i.e. Tata Steel acquired Corus which is the Anglo-Dutch steel producer in January 2007 and the deal was made at the US $12.11 billion. This acquisition was considered as the biggest acquisition in overseas by an India-based company. Tata Steel became the world’s 5th largest steel producer after this acquisition. Tata steel also got access to the strong distribution network of Corus in Europe.

Tata Steel could use the expertise of Corus in producing the grades of steel for aerospace and automobiles for boosting its supply to the automobile market of India. On the other hand, Corus was supposed to get benefit from the expertise of Tata Steel in manufacturing steel at a low cost.

This enables Tata to manufacture low-value, flat and long steel products, wherein Corus manufactures stripped products of high-value.

C) Horizontal integration through Takeover

This is a special type of horizontal integration that happens when a firm seeks control of another firm without the consent or agreement of the acquired firm. These types of takeovers are generally known as hostile takeovers that are without permission.

Process of Hostile takeover

The process of hostile takeover starts with the takeover of the firm by acquiring firm through a proxy fight or tender offer. Tender offers of hostile takeovers include direct buying of the target firm’s share from shareholders.

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. In this process, a higher price than the stock’s market value is offered by the acquiring firm to shareholders of the target firm to buy its shares. In proxy fight takeover, the acquiring firm seeks the voting rights of shareholders of the target firm to have control over its board of directors. The final stage of the takeover includes filing an acquisition notice of 30 days with the SEC (Security & Exchange Commission) and the board of directors of the target firm.

Example of horizontal integration through a hostile takeover

India Cements Ltd. (ICL) raised a hostile takeover bid for Rassi Cements Ltd. (RCL) in February 1998. The open offer was made at Rs. 300 per share for 20% shares of RCL and that time the share price of RCL was Rs. 100 on SE (Stock exchange). A considerable stake was also held by financial institutions in RCL. At the public offer term, RCL’s promoter came forward to make a deal for selling his 32% stake to ICL and that too at a price lower than the price of the open offer. Simultaneously, ICL also purchased financial institutions through an open offer and thus, able to increase its stake in RCL to 85%.

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