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Example of Horizontal Integration

Horizontal integration is the operation by a single owning entity of a range of similar businesses in the same industry, usually after a takeover and sometimes as a merger. The concept is based on using the multiple market presences of the original businesses and penetration of the different markets of each business. The 'integration' element involves the businesses operating collectively as a single business for the owner.

Horizontal integration is essentially a merger of business interests. This is a common term in takeovers, when a business buys or merges with a competing business.

The process of horizontal integration is based on efficiencies and deriving maximum benefits from the merger.

Examples of Horizontal Integration:

A hardware store owner takes over three other long established hardware stores, former competitors in the same region. The new operator retains the names and clientele of each of the stores, but retains their suppliers and markets each separately to retain the valuable goodwill and local identity of the stores. The horizontal integration in this case is management and administrative based, which is a cost efficiency.

Two printing franchises merge. The merger provides them with greatly increased market share, and management wants to exploit the new market reach with improvements to business operations and improved cost efficiencies.

  • Franchises where the two firms were in direct competition are merged into single operations, reducing operating costs.
  • Excess staff are retrained to provide additional services and redeployed, increasing productivity and eliminating the cost of hiring new staff.
  • The new business opens up a general service for the franchisees, acting as a shop front for phone and online customers.
  • Supply is centralized, streamlining distribution of materials to franchises.