Introduction
Vertical and horizontal integrations are two important strategies that are used in the business world. When a firm wants to grow, it can either expand its current business or work with other firms through mergers or acquisitions. When a firm decides to merge with other companies it strategically promotes the growth of its business through horizontal or vertical integration. A single company can implement both vertical and horizontal integration strategies to expand its operations (Gareth and Hill 12).
Analysis
Horizontal integration refers to the merging or acquisition of different companies that are in the same operational field. In this case, the companies involved work together to achieve a common objective or goal. This can be achieved by either buying a competing company or by joining together to form a bigger and stronger company in order to eliminate direct competition. On the other hand, horizontal integration can be implemented in one organization whereby different departments work together towards a similar goal. It is easier to be implemented within an organization due to the closeness of the departments since they are in one geographical region (Jenkins and Thorburn 16).
This kind of integration has its own advantages and limitations just like other business strategies. One of the most important forward aspects of this strategy is that a company is able to enter into new regions without being hindered by the factors that hinder other new entrants in the business market. This is because the company does not start from scratch, but it works on improving what is already in place thus avoiding extra costs like building costs. Another forward aspect is that a firm that has integrated horizontally gains from an economic scale. This happens when the costs of operation are less than the profits a company makes from those operations (Gareth and Hill 12).
A horizontal integration strategy for big companies has one major drawback. There are rules and regulations that govern horizontal integration. These rules can be severe to the level that they affect the company’s economic returns or even stop the whole process of horizontal integration. In small businesses, one of the most dangerous drawbacks of this strategy is how the consumers view it. Consumers perceive this strategy as an act of being greedy and this creates a negative image of the company in the business market (Kokemuller 14).
Vertical integration aims at providing profitable returns to the company that conducts its operations in the manufacturing or distribution of goods and services. The company can decide to move forward by getting involved in the distribution of manufactured goods or engage in the process of acquiring raw materials by taking a backward move (Mack 18).
This kind of approach has many advantages to the company that employs it. One of the forward drivers for this approach is that it gives the company an ability to control the whole process of production. This puts the company in a position of getting better returns since it controls the price of the raw materials as well as the price of the end products in the marketplace. This strategy enables the company to gain total control in the production and distribution of goods and services (Sarkissian 5).
One of the drawbacks in vertical integration is that the company involved requires expertise and other factors of production in order to succeed. This involves the employment of skilled personnel and the construction of the required infrastructures which increases the costs of operation (Atlee and Kelada 11).
Works Cited
Atlee, Stroup, and Kelada, Joseph. Integrating Reengineering With Total Quality, New York: Penguin, 2012. Print.
Gareth, Jones and Hill, Charles. Strategic Management Theory: An Integrated Approach, Portsmouth: Heinemann, 2009. Print.
Jenkins, Henry and Thorburn, David. Rethinking Media Change, Massachusetts: MIT Press, 2009. Print.
Kokemuller, Neil. “Difference between a Vertically Integrated Company & a Horizontally Integrated Production Company”, Demand Media 24.6 (2011): 134-178. Print.
Mack, Stan. “What Are the Differences Between Vertical & Horizontal in Strategic Management?”, Demand Media 22.7 (2013): 234-286. Print.
Sarkissian, Alfred. “Horizontal vs. Vertical Strategic Alliances”, Demand Media 12.9 (2012): 148-158. Print.