Advantages of Horizontal Integration
Often , companies pursue horizontal incorporation to expand their size, achieve economies of scale, decrease competition or get new markets. It can happen through mergers, acquisitions or hostile takeovers.
A company purchasing another organization for being its new parent can also achieve side to side integration, provided that both parties have similar goals and are generally willing to work toward them. As a result, they have use of the same source chain, business partners and customers.
The resulting enterprise is often more effective than their independent precursor. This is due to price synergies, just like shared technology and product lines.
It also offers more business, which allows the merged organization to charge more for products and services. This can increase it is profits two-fold or more.
However , this strategy may lead to industry debt consolidation when done correctly the due diligence process will (oligopoly or monopoly), which is an unhealthy result. It is vital for businesses to weigh the pros and cons of horizontal integration before going after it.
Regulatory issues and antitrust laws can slow down or end horizontal incorporation attempts. These types of laws are designed to prevent monopolies from exploiting their electric power and taking over the market.
A company that is planning on side to side integration should be capable to handle the enlarged organization efficiently. The newest management can develop steps and procedures that can adapt to the elevated size of the business.
The process of horizontal integration may be costly and time-consuming. It may also bring many unforeseen problems, such as diseconomies of dimensions and unexpected employee-related problems.