Horizontal integration is a business strategy that involves acquiring or merging with companies that operate in the same industry or provide similar products or services. This is the opposite of vertical integration where a company strategically merges with or acquires other companies that are either above or below it on the supply chain.
Horizontal integration gives the merging companies some advantages that includes economies of scale (low cost of production and high level of production) which can translate to a higher revenue. Which is good.
But at the same time, it could equally result in inefficiency in operations, promote monopoly and collusive behavior that leads to high prices of products. In essence, horizontal integration may be a good strategy for the company but could spell doom for consumers who now have limited choices.
Types of Horizontal Integration
Mergers - two companies that are in the same line of business (that is producing similar products and that would ordinarily be competitors) decide to come together (combining their resources) to become one big company.
Acquisitions - a bigger company acquires a smaller company in the same line of business or an alternative one that stands to benefit the larger company, and takes control of it. The smaller company loses its identity and operates under the umbrella of the larger company.
Internal Expansion - a company might put in resources to expand into other sectors in the same line of business.
An example of Horizontal integration is Facebook's acquisition of WhatsApp and Instagram.