Horizontal & Vertical Integration 

1. Horizontal & Vertical
Integration

2. Vertical integration
• Vertical integration is a strategy where a company expands its
business operations into different steps on the same production path,
such as when a manufacturer owns its supplier and/or distributor.

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

4. Advantages and Disadvantages of horizontal
integration
Advantages
1. May benefit from increased economics of sales
2. Rationalisation of staff and capital to increase efficiency
3. Example: Disney and Pixar
Disadvantages
1. Increasing the size of the company also increases the size of the
problems, bigger companies are harder to handle

5. Advantages and Disadvantages of Vertical
integration
Advantages
1. Reduce transportation costs if common ownership results in closer geographic proximity.
2. Improve supply chain coordination.
3. Provide more opportunities to differentiate by means of increased control over inputs.
Disadvantages
1. . Inability to increase product variety.
If significant development within the company is needed, it will decrease the organization’s ability to increase its product
variety.
2. Flexibility decreased.
Businesses that are previously involved with upstream or downstream investments will more likely result to the decrease
in its flexibility. However, it will increase the flexibility in the coordination of vertically-related activities.
Example: An example of vertical integration is a store, like Target, which has its own store brands. It owns the manufacturing,
controls the distribution, and is the retailer. Because it cuts out the middleman, it can offer a product like the brand name
product, but at a much lower price.
Manufacturers can also integrate vertically. Many footwear and apparel companies have a flagship store that sells a wider range
of products than you can get from a regular retailer. Many also have outlet stores that sell last season's products at a discount.