There are many types of ways businesses can integrate. These are known as horizontal, vertical, lateral and conglomerate.
Horizontal Integration
This is a merger of takeover between two firms in the same market at the same stage of production or distribution. Examples of this are Abbey and Santander.
Key Advantages of Horizontal Integration
Better market power.
Economies of scale.
Increased market share.
More inelastic (less competition).
Significant reduction in average costs.
Synergies (1+1=3).
Cut out duplication and waste such as Research and Development.
Key Problems with Horizontal Integration
Culture clashes – Hard HR vs Soft HR.
Power struggles with mergers.
Diseconomies of scale.
Weak communication and structure.
Costs of redundancies.
Risk isn’t spread into different markets.
Vertical Integration
This is when there is a merge or takeover where the two firms are at different stages of the production or distribution chain in the same market. Backward vertical is when you buy out the supplied. Forward vertical is when you buy out a customer.
Key Advantages of Vertical Integration
Control over suppliers providing exclusive prices.
Control over customers.
Generates USP.
Growth opportunities in different markets.
These advantages all help to spread risk.
Key Problems with Vertical Integration
Little knowledge and expertise of the market.
Account/window dressing issues.
Culture clashes etc..
Lateral Integration
This is where two firms are ‘similar’. However, they are not in exactly the same position. Examples include PepsiCo and Walkers.
Key Advantages of Lateral Integration
Spreads risk.
Opportunities for market/production development.
Brand acquisition (buying a brand name).
Synergy (1+1=3).
Market power.
Key Problems with Lateral Integration
Lack of expertise going into similar market.
Conglomerate Integration
This is where two firms are unrelated and are diversifying. Examples include Virgin and Northern Rock.
Key Advantages of Conglomerate Integration
Spreads risk of failure in one specific market.
Strategy for growth.
Rewards are higher.
Key Problems with Conglomerate Integration
Lack of knowledge and expertise etc.
