Q 641. What is Horizontal Integration? Provide some examples where it has been successfully done. Also, how does it impact the Business Excellence strategy of both the companies (the one acquiring and the one getting acquired)?

 

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When two or more companies from the same industry combine by way of a merger or an  acquisition then an example of horizontal expansion has been set. Typically, horizontal integration helps a company to increase its dominance and market share by way of the expansion.

 

From a positive perspective, horizontal integration helps a company to increase its market share, increase revenue, reduce costs etc. However horizontal integration does not always lead to a positive outcome. If not done and managed properly, it can lead to bad performance, reduced growth, increase in attrition etc. It may also negatively impact consumer sentiment as the newly created behemoth will have control on market prices, number of products introduced in the market etc.

 

Examples of horizontal integration are acquisition of Jaguar Land Rover by Tata Motors in 2008, acquisition of Arcelor by Mittal Steel in 2006 and more recently the merger of Facebook with Instagram. 

 

In most cases, the business excellence strategy will be negatively impacted for the company which being acquired because in real world scenarios, more often than not, the acquiring company will impose its BE strategy on the newly formed company to ensure uniformity in implementation.

 

Thanks.

 

Regards,

Lalit

 

 

 

HORIZONTAL INTEGRATION

 

Horizontal intergartion is basically acquisition of business operations in same domain or in same industry or at the same level of the value chain within a industry. This helps company to grow its operations in size and revenue, expand its market reach, diversify its product range and reduce competition. 

Horizontal Integration can be done ca be achieved by either of the following:

1. Merger. 
2. Acquisition. 
3. Internal Expansion.

EXAMPLES OF HORIZONTAL INTEGRATION

• Microsoft  acquired Activision Blizzard.
• Procter & Gamble’s acquisition of Gillette.
• Facebook acquisition of Instagram and Whatsapp.
• Disney's acquisition of Pixar
• Mittal Steel’s acquisition of Arcelor (steel)
• The merger of Vodafone and Idea.

BENEFITS OF HORIZONTAL INTEGRATION FOR BUSINESS EXCELLENCE

1. Create economies of scale.
2. Increase in Market Power.
3. Improves Product differentiation. 
4. Business expension into new market.
5. Reduced competition.
6. More cost effective solution thru synergy.
7. Shared research and development.
8. Best of Best practices.

 

 

Horizontal integration involves buying out or merging with another company that offers comparable goods or services. 

 

A prime illustration of a horizontal integration is the merger of Facebook, Instagram, WhatsApp and Messenger. They succeeded in increasing their social media presence while keeping the separate websites up to date. Another illustration is the merger of Sprint and TMobile, which improved their ability to compete with other cellular providers. 

 

Since there are fewer competitors in the industry, horizontal integration can have a significant impact on market competition through the Business Excellence strategy. Additionally, by growing their activities, these corporations boost their size and revenue in addition to increasing their market dominance.

Horizontal integration can impact Business Excellence strategy has significant impact on market competition as this reduces the number of competitors in the industry. As well as Increase market power by expanding their operations with this companies as a result it increases its size and revenue.

Horizontal Integration

It’s a business strategy for growth where companies either take over, merge or aim for expansion internally. Any of these upon successful implementation will result in

1.       Increased market share

2.       Balances competition

3.       Enhanced product coverage and growth

4.       Improves Customer Satisfaction

Take Over: In this strategy, Company A takes over all the activities of Company B including the customers of Company B. In the telecom industry in India during the period 2010-20 a bunch of new entrants were acquired by the large players as they couldn’t sustain the competition which involved huge investments to roll out as well as maintain the existing network. Without maximizing revenue investments became a huge question

1.       RCOM acquired SSTL

2.       Jio acquired the assets of RCOM

3.       Bharti Airtel acquired Loop Telecom

4.       Vodafone acquired C&WW (Cable & Wireless Worldwide) in the UK

Merger: In this strategy Company A merges with Company B and both jointly operate to deliver the services/ products to the customers. There is a clear demarcation of powers defined by the % stake one owns in the merger. There are quite a few examples in the telco domain again

1.       Vodafone Merged with Idea and jointly operates under the brand VodafoneIdea

2.       BT (British Telecom) and EE merged and operate under the brand BT EE they provide wireline and wireless services in the UK

3.       Virgin Media and O2 merged and operate under the brand VMO2 and provide wireline and wireless services in the UK

Internal Expansion: In this strategy, the company decides to deploy capital to expand horizontally create value for its customers, generate revenue and minimize dependencies on partners. Again there are quite a few examples in the telco space

1.       Jio started as a telco and deployed fibre to deliver wireline and wireless services how ever invested heavily in expanding horizontal services under Jio Consumer platforms which has

a.       Jio Money

b.       Jio Apps and Jio TV

c.       Jio Mart

d.       Jio Sign

2.       Airtel investing heavily in the data centre business under the brand Nxtra Data

Impact on Business Excellence Strategy

The business excellence function will be realigned towards the new organizational strategy, the existing projects/ initiatives will be reprioritized and more importance will be given to

1.       Ensure the combined business builds and gains momentum

2.       Leverage the synergies between both companies, pick up the best practices from each other and enhance a combined learning

3.       Define cross-functional and cross-company collaboration that helps colleagues to work towards a common goal

4.       Define a transformation approach and drive the colleagues to contribute to the transformation goals

In a situation where Company A acquired the Company B, there are higher chances to

1.       Stall the projects/ initiatives of Company B as more focus and priority will be given to drive the initiatives which were up and running in Company A

2.       Allocation of resources (Financial, people and logistics) to the existing initiatives under implementation in Company B

When a company plans to expand its business by venturing into products or services within the same industry. This can be achieved by developing that product or service in-house, incurring development costs in reinventing the wheel or there is another option viz. to acquire a company in the same space.

This strategy of expanding business operations, product/service portfolio, reducing cost, increase market share by acquiring a company is also called horizontal integration.

Few Examples;

1. Facebook (now Meta) acquired WhatsApp, a social media messaging app. It helped Facebook to increase its user base as well as eliminate competition in the market.
2. Tesla acquired Twitter(now X), a social media app. It helped Tesla to venture into one of the biggest discussion forums and user base exercising free speech.
3. Reliance Retail Ventures acquired majority stakes in Ed-a-Mamma, a kid and maternity wear brand founded by Alia Bhatt.

Horizontal integration impacts the business excellence strategy of both acquired and acquiring companies in the following ways:

1. Good Practices & policies: Both company Sr. management could assess their present practices and policies and identify the good cultural policies & the best practices that can be horizontally deployed to both organizations

 

2. Operational efficiency: Combining & centralizing operations resources and optimizing the supply chain of both the organization, operational efficiency will be improved.
3. Market share: Increased customer/user base would enable the organization to increase its market share and with higher market penetration organizations will have pricing power for their market offering
4. Competitive advantage: The organization can offer a package deal to its enhanced user base which will give the organization an edge over its competition

Horizontal Integration is a process of merger or acquisition or expansion of a business to increase their market share.

Examples of successful Horizontal Integration :

1. Facebook's acquisition of WhatsApp and Instagram
2. Vodafone and Idea Merger
3. Waly Disney acquiring Pixar
4. Andhra Bank to Union Bank of India

As the business line of both industries are same, it helps them to reduce production costs, marketing costs and increases the revenue of the parent company. However, it reduces the competitiveness and the end user might not have may options to choose from.

 

 

 

While the question seemed simple, there was a twist at the end w.r.t. the impact that horizontal integration will have on the business excellence initiatives in the two companies. All the answers are relatively illustrative. The best answer has been given by Hari Shankar. Well done!