Vertical integration is defined as the process by which the coordination of the commercial chain takes place, the visible ends of which are primary production and the consumer.

In the agricultural sector, the value chain refers to the entire production system of agricultural and livestock products, their transformation and commercialization, from the beginning to the finished product, comprising a series of actors, linked by product flows, financial resources, information and services (KIT, IIRR and FOROLACFR, 2010). It also includes the activities of intermediaries, which often "stay" a large part of the added value of production, damaging the income of farmers.

From a strategic point of view, the economic actor that coordinates the value chain appropriates most of the benefits generated during the process of creating value for the products.

The vertical integration strategy pursues very specific objectives:

1-The most important is to reduce the acquisition costs of raw products or raw materials.

2- Ensuring that the supply is not cut off is another positive variable of vertical integration.

3- The negotiation capacity of the macro company created after the vertical acquisition strategy will be much greater than before.

4-Reducing dependence on third-party agents also improves the organization, efficiency and productivity.

5-Obtaining of information is infinitely greater when the companies of the whole productive cycle are owned.

6- The question of prices requires a little stop in it to analyze it in depth.

7- In addition, vertical integration opens the possibility of making plays that others can not.

Horizontal integration is a strategy adopted by agribusiness companies when they seek to offer their products or services in different markets. As in the case of vertical integration, this is an existing option in the strategic direction of companies when considering their growth. Therefore, it has been observed one of the characteristics of this type of integration: it allows companies to take advantage of their technological, human resources, etc. Another characteristic is complementarity since the benefit obtained from horizontal integration processes will depend to a large extent on the complementarity of the parties or subsidiaries.

Another remarkable case of horizontal integration was that carried out by the courier companies, taking advantage of their usual service of sending and receiving merchandise to develop an insurance service on the packages they usually transported.

In addiction, other aspect to highlight the companies that bet on this type of strategy is the growth of sales with the intention of reaching large market shares companies choose to acquire similar or competing companies. In this way, even situations close to a monopoly in certain markets can be reached, since the level of competition in them is reduced.

There are two types of horizontal integration:

Marketing: In the horizontal integration of marketing seeks to make the company with greater market coverage. Through the creation of subsidiary firms that service is offered for sale or in different market segments.

Production: In this case, a company establishes a series of production plants at different points where similar products are offered. This is usually the least frequent modality.

Horizontal integration can be executed through company purchase actions or mergers in the same sector.

By comparison with vertical integration, the practice of horizontal integration can stimulate the creation of economies of scale or economies of scope thanks to the commented use of resources.

I hope I have been helpful.

With regards.

Vertical integration is a competitive strategy by which a company takes complete control over one or more stages in the production or distribution of a product. In vertical integration company assure the full control supply of raw material to manufacture its product. Whereas, Horizontal integration is the acquisition of business activities that are at the same level of the value chain in similar or different industries. The horizontal integration is the acquisition of a related business for example a fast-food restaurant chain merging with a similar business in another country to gain a foothold in foreign markets.

https://www.jstor.org/stable/1241867?seq=1#page_scan_tab_contents

What is Vertical and Horizontal integration?

vertical integration horizontal integrationMany a times, while gazing through the business daily, you come across the words “Vertical integration” or “Horizontal integration”. While some take it as a business gimmick; others do have but only a slight idea of what it is. In any case, as a regular business reader or as an entrepreneur, one needs to be aware about all the aspects of vertical and horizontal integration.

Both of these relate to strategies that are made to grow your business but they differ in approach. And most of the times which one to choose is not a very straight forward decision.

In this post we will try to completely understand Vertical and Horizontal integration and list certain key things that a business should take care of while looking forward to any of these options

What is Vertical Integration?

Out of all the definitions I read online the best one is from Investorwords which says.

Vertical integration is the process in which several steps in the production and/or distribution of a product or service are controlled by a single company or entity, in order to increase that company’s or entity’s power in the marketplace.

Simply said, every single product that you can think of has a big life cycle. While you might recognize the product with the Brand name printed on it, many companies are involved in developing that product. These companies are necessarily not part of the brand you see.

Example of vertical integration: while you are relaxing on the beach sipping chilled cold drink, the brand that you see on the bottle is the producer of the drink but not necessarily the maker of the bottles that carry these drinks. This task of creating bottles is outsourced to someone who can do it better and at a cheaper cost. But once the company achieves significant scale it might plan to produce the bottles itself as it might have its own advantages (discussed below). This is what we call vertical integration. The company tries to get more things under their reign to gain more control over the profits the product / service delivers.

Types of Vertical Integrations:

There are basically 3 classifications of Vertical Integration namely:

Backward integration – The example discussed above where in the company tries to own an input product company. Like a car company owning a company which makes tires.

Forward integration – Where the business tries to control the post production areas, namely the distribution network. Like a mobile company opening its own Mobile retail chain.

Balanced integration – You guessed it right, a mix of the above two. A balanced strategy to take advantages of both the worlds.

What is Horizontal Integration?

Much more common and simpler than vertical integration, Horizontal integration (also known as lateral integration) simply means a strategy to increase your market share by taking over a similar company. This take over / merger / buyout can be done in the same geography or probably in other countries to increase your reach.

Examples of Horizontal Integration are many and available in plenty. Especially in case of the technology industry, where mergers and acquisitions happen in order to increase the reach of an entity.

As per me an apt example of Horizontal Integration will be You Tube, which was taken over my Google primarily because it had a strong and loyal user base. (There was no rocket science in technology used at Youtube which Google couldn’t have done without taking over, but yes to increase the viewers was definitely as complex without the takeover.)

Executing these strategies and key points to remembers

Vertical and Horizontal integration strategy generally can be done by businesses which have established themselves and probably have a stable life as compared to ones which have to address risks on a regular basis. The immediate advantage of implementing them is to

Have economies of scale

Expand your knowledge and capabilities increase market (and profits) own the whole life cycle so that you can change it the way required

Reduce competition (by merging with them rather than competing)

Provide better services

What is Vertical and Horizontal integration?

vertical integration horizontal integrationMany a times, while gazing through the business daily, you come across the words “Vertical integration” or “Horizontal integration”. While some take it as a business gimmick; others do have but only a slight idea of what it is. In any case, as a regular business reader or as an entrepreneur, one needs to be aware about all the aspects of vertical and horizontal integration.

Both of these relate to strategies that are made to grow your business but they differ in approach. And most of the times which one to choose is not a very straight forward decision.

In this post we will try to completely understand Vertical and Horizontal integration and list certain key things that a business should take care of while looking forward to any of these options

What is Vertical Integration?

Out of all the definitions I read online the best one is from Investorwords which says.

Vertical integration is the process in which several steps in the production and/or distribution of a product or service are controlled by a single company or entity, in order to increase that company’s or entity’s power in the marketplace.

Simply said, every single product that you can think of has a big life cycle. While you might recognize the product with the Brand name printed on it, many companies are involved in developing that product. These companies are necessarily not part of the brand you see.

Example of vertical integration: while you are relaxing on the beach sipping chilled cold drink, the brand that you see on the bottle is the producer of the drink but not necessarily the maker of the bottles that carry these drinks. This task of creating bottles is outsourced to someone who can do it better and at a cheaper cost. But once the company achieves significant scale it might plan to produce the bottles itself as it might have its own advantages (discussed below). This is what we call vertical integration. The company tries to get more things under their reign to gain more control over the profits the product / service delivers.

Types of Vertical Integrations:

There are basically 3 classifications of Vertical Integration namely:

Backward integration – The example discussed above where in the company tries to own an input product company. Like a car company owning a company which makes tires.

Forward integration – Where the business tries to control the post production areas, namely the distribution network. Like a mobile company opening its own Mobile retail chain.

Balanced integration – You guessed it right, a mix of the above two. A balanced strategy to take advantages of both the worlds.

What is Horizontal Integration?

Much more common and simpler than vertical integration, Horizontal integration (also known as lateral integration) simply means a strategy to increase your market share by taking over a similar company. This take over / merger / buyout can be done in the same geography or probably in other countries to increase your reach.

Examples of Horizontal Integration are many and available in plenty. Especially in case of the technology industry, where mergers and acquisitions happen in order to increase the reach of an entity.

As per me an apt example of Horizontal Integration will be You Tube, which was taken over my Google primarily because it had a strong and loyal user base. (There was no rocket science in technology used at Youtube which Google couldn’t have done without taking over, but yes to increase the viewers was definitely as complex without the takeover.)

Executing these strategies and key points to remembers

Vertical and Horizontal integration strategy generally can be done by businesses which have established themselves and probably have a stable life as compared to ones which have to address risks on a regular basis. The immediate advantage of implementing them is to

Have economies of scale

Expand your knowledge and capabilities increase market (and profits) own the whole life cycle so that you can change it the way required

Reduce competition (by merging with them rather than competing)

Provide better services

Horizontal integration is an expansion strategy adopted by a company that involves the acquisition of another company in the same business line. Vertical integration refers to an expansion strategy where one company takes control over one or more stages in the production or distribution of a product.