Difference Between Horizontal Integration and Vertical Integration

Main Difference

Firms and companies try to gain more of the market control than their competitors to become the number one in the specific field and gain more and more profits. The strong competition in the market is most primarily eliminated by improving the quality, lessening the prices, and doing best possible promotions of their product. The other possible plan to gain the market control, and to eliminate the strong competition is to acquire or to have a merger with the companies. We came across the two terms in the business field; Horizontal Integration and Vertical Integration, both of these terms explain the nature and type of the growth and expansion of companies using merger or acquisition. When one company acquires or set merger with the other company or companies, working in the same part of the supply chain/production level, this type of expansion is known as the horizontal integration. On the other hand, when one company acquires or set merger with other company or companies, working at the different stage of production, this type of expansion is known as the vertical integration.

Comparison Chart

Horizontal IntegrationVertical Integration
DefinitionHorizontal integration is the type of expansion in which one company acquires or set merger with other company or companies, working at the similar production level.The vertical integration is the type of expansion in which one company acquires or set merger with other company or companies, working at different levels of production.
PurposeThe sole purpose of horizontal integration is to grow the business by eradicating the competition and holding the maximum market share.The sole purpose of the vertical integration is to reduce the cost by setting the supply-chain network.
UsefulThe horizontal integration is handy when one wants to take control of the market.The vertical integration is handy when one wants to take control of the industry (different production levels).

What is Horizontal Integration?

Horizontal integration is the type of growth and expansion of the firm or the company. In this type of expansion, one company acquires or set merger with the other company or companies, working at the same production level. This type of policy is adopted by the company to eradicate the competition in the market, and hold the maximum market share; it also leads to the growth of the business size of the company. Whenever a company is eyeing to acquire or set the merger with the company, it needs a hefty capital to lure the other company, which also holds the more or less percentage of the market. In this both the companies going through the merger or the acquisition, produce the similar products or offer quite the similar services. As we know that PEPSI and COCA-COLA are two of the companies producing similar kind of soft drinks in the market. They are also the strong competitor in the market, withholding the maximum of the soft drink market share worldwide. For instance, if both these companies go through the merger or the one acquires the other, this type of expansion at same production-level having similar products is known as the horizontal integration.

What is Vertical Integration?

Vertical Integration is the type of growth and expansion of the firm or the company. In this type of expansion, one company or firm acquires or set merger with other company or companies, working at the different stage of production for quite the similar product. The main objective of a company going for the vertical integration is to strength the supply chain of that product by reducing the cost of production. As we know that there are different levels of production i.e. production of products, distribution and supplier of that product. The company wants to expand in such a way that they could gain the control of the entire industry, they set to merge or get acquired the other company working at the different production level. For instance, PEPSI is known for the production of products; if they get acquire or set a merger with a company, which works at the different production level, means works as the distributor or supplier of that product; it would surely have reduced the total cost of that product.

Horizontal Integration vs. Vertical Integration

  • Horizontal integration is the type of expansion in which one company acquires or set merger with other company or companies, working at the similar production level. On the other hand, the vertical integration is the type of expansion in which one company acquires or set merger with other company or companies, working at different levels of production.
  • The sole purpose of horizontal integration is to grow the business by eradicating the competition and holding the maximum market share. Contrary to this, the sole purpose of the vertical integration is to reduce the cost by setting the supply-chain network.
  • The horizontal integration is handy when one wants to take control of the market, whereas the vertical integration is handy when one wants to take control of the industry (different production levels).

Comparison Video

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