Within the business world, vertical diversification refers to the supply chain, in comparison to horizontal diversification, which refers to competitors in the same market. This means vertical diversification usually means buying out either a supplier or a customer.
Should you expand through horizontal and vertical integration?
Should You Expand Through Horizontal and Vertical Integration? Examples of horizontal integration include when one large hotel chain buys another or when a major studio company purchases a small Vertical integration can also be the degree to which a firm owns its upstream suppliers (backward integration) and its downstream buyers (forward ...
What company is an example of horizontal integration?
Examples. An example of horizontal integration in the food industry was the Heinz and Kraft Foods merger. On 25 March 2015, Heinz and Kraft merged into one company, the deal valued at $46 billion. Both produce processed food for the consumer market.
What is the difference between horizontal and vertical organizational structure?
- Implementing systems to ensure appropriate utilization of services
- Deploying evidence-based practice standards and protocols
- Performance evaluation and feedback to included providers
- Case management and care coordination [ 29, 30]
What are some examples of vertical integration?
Vertical Integration: Pros, Cons, and Examples
- Types of Vertical Integration. There are more than a few types of vertical integration. ...
- Examples. An example of a company that is vertically integrated is Target, which has its own store brands and manufacturing plants.
- Advantages. ...
- Disadvantages. ...
- Vertical Integration of a Supply Chain. ...
What is vertical diversification example?
Vertical diversification is also known as vertical integration. In this growth strategy, a company expands its business in the forward or backward direction. Firms add new products (or services) complementary to the existing products. If a firm manufactures rayon and textiles, it grows through vertical diversification.
What is horizontal diversification?
a growth strategy in which a company seeks to add to its existing lines new products that will appeal to its existing customers.
What is difference between horizontal and vertical integration?
Horizontal integration is when a business grows by acquiring a similar company in their industry at the same point of the supply chain. Vertical integration is when a business expands by acquiring another company that operates before or after them in the supply chain.
What is example of horizontal and vertical integration?
Horizontal integration helps acquire control over the market, but vertical integration helps gain control over the whole industry. Example: The Heinz and Kraft Foods merger is an example of Horizontal Integration.
What is vertical diversification strategy?
Vertical Diversification is one of the crucial diversification and expansion strategy. In this, a firm expands either in the forward or backward direction. Basically, under this diversification, a firm tries to make its presence in the supply chain, either by taking over a supplier or the customer, or both.
What is an example of vertical integration?
For instance, chocolate manufacturing has many stages of the supply chain. Two of which are the processing of the cocoa beans, and another to manufacture the final chocolate bar. Vertical integration occurs when the chocolate manufacturer (e.g. Mondelez) purchases a cocoa bean processor that is buying its beans from.
What is the difference between vertical vs horizontal diversification strategies and which is best for improving scale economies for a business?
Key Differences Between Horizontal and Vertical Integration Horizontal Integration aims at increasing the size of business and scale of production, whereas Vertical Integration focuses on strengthening and smoothening its production-distribution process.
What is vertical and horizontal?
The terms vertical and horizontal often describe directions: a vertical line goes up and down, and a horizontal line goes across. You can remember which direction is vertical by the letter, "v," which points down.
What is horizontal and vertical in business?
A vertical market is a market in which vendors offer goods and services specific to an industry, trade, profession, or other group of customers with specialized needs. A horizontal market is a market in which a product or service meets a need of a wide range of buyers across different sectors of an economy.
What are some examples of horizontal integration?
Horizontal integration is where a business joins with another at the same stage of the supply chain. In other words, two businesses that are similar, become one company. For instance, a merger between Nike and Adidas would be an example of horizontal integration.
What is the difference between horizontal and vertical integration quizlet?
Vertical integration occurs when a company owns all parts of the industrial process. Horizontal integration occurs when a company grows by buying its competitors.
Who used vertical and horizontal integration?
CarnegieCarnegie became a tycoon because of shrewd business tactics. Rockefeller often bought other oil companies to eliminate competition. This is a process known as horizontal integration. Carnegie also created a vertical combination, an idea first implemented by Gustavus Swift.
What is vertical diversification?
Vertical diversification is also known as vertical integration. In this growth strategy, a company expands its business in the forward or backward direction. Firms add new products (or services) complementary to the existing products. If a firm manufactures rayon and textiles, it grows through vertical diversification.
What is the unrelated approach to diversification?
It means adding dissimilar products or services to the existing products. It is diversification into new products, new markets, new technologies or new market functions not related to the existing business. Tata industries have followed conglomerate diversification by diversifying into unrelated areas such as automobiles, iron and steel, telecommunication, consumables (salt) etc.
What is backward integration?
Backward Integration: It is a form of vertical integration where firms integrate backwards to produce the inputs or raw materials. Rather than buying inputs from outside, firms manufacture their own inputs. If sugar mills own sugarcane farms, they are said to have diversified through backward integration.
Why do companies prefer concentric diversification?
Companies prefer concentric diversification because of the following reasons: 1. Declining sales in one product can be offset by rising sales in the other. The effect of cyclical fluctuations is, thus, reduced. ADVERTISEMENTS: 2. It increases the cash flows and profits.
What is the result of a company selling televisions adding music systems and washing machines?
If a company selling televisions adds music systems and washing machines also, it is said to result in technology related concentric diversification; though however, this is market-related diversification also as the same consumers may buy these products. ADVERTISEMENTS:
What is horizontal diversification?
In horizontal diversification, two businesses, similar or dissimilar, join together. 2. Size of operations: Horizontal diversification enlarges the scope of operations and, thus, provides economies of scale. 3. Flexibility: Failure of one business does not disturb the activities of the other.
Does vertical diversification increase power?
Power: Vertical diversification increases the speed, quantity and quality of work but does not increase power of the firms. 5. Competition: Vertical diversification does not reduce competition. In fact, it strengthens competitive position of the firms. ADVERTISEMENTS:
What is horizontal diversification?
Horizontal diversification is a method of product diversification that adds new products to a company's lines that are meant to serve existing customers. When a company decides to use horizontal diversification, they might add products to one of their current product lines that do not relate to the other products in the line.
How does horizontal diversification benefit a company?
One clear benefit of horizontal diversification is the chance for a company to grow its product lines. Because horizontal diversification often involves introducing new products to existing lines in the interest in better serving current customers, it can result in product lines being expanded and becoming more complete and varied. Growing product lines can improve a company's performance by increasing the chances of returning customers purchasing more products from them by offering new products that they're likely to use. This can result in an increase in revenue by generating more sales overall.
Why do companies diversify their products?
A company might choose to diversify the products they offer so that they can better service their existing customers and attract a larger customer base. Many companies use horizontal diversification to add new products to their product lines that serve purposes their other products might not fulfill. If you work in sales or manufacturing, knowing ...
Why are shoes considered horizontal diversification?
Because shoes are different products than shirts, bottoms or dresses, this is an example of horizontal diversification, as the same customers who purchase the company's clothing might be inclined to also purchase shoes from their stores.
How does growing product lines improve a company's performance?
Growing product lines can improve a company's performance by increasing the chances of returning customers purchasing more products from them by offering new products that they're likely to use. This can result in an increase in revenue by generating more sales overall.
Types of Vertical Diversification
There are mainly two types of vertical diversification, and these are:
Real World Examples
Amazon is a very good example of vertical integration. Along with serving as a platform for buyers and sellers, the company sells its own products as well. Also, the company operates its own distribution channel. So, Amazon sources products, market them, sells them and then distributes them.
Final Words
Vertical Diversification is a key diversification strategy. Successful implementation of this strategy can result in several benefits, including more revenues, more profit, better control over the supply chain and market share. However, such a strategy may not always be successful.
Sanjay Bulaki Borad
Sanjay Borad is the founder & CEO of eFinanceManagement. He is passionate about keeping and making things simple and easy. Running this blog since 2009 and trying to explain "Financial Management Concepts in Layman's Terms".
What is vertical diversification?
Within the business world, vertical diversification refers to the supply chain, in comparison to horizontal diversification, which refers to competitors in the same market. This means vertical diversification usually means buying out either a supplier or a customer.
What is diversification in business?
In business, it refers to one company taking over a supplier or customer rather than a competitor. In all finance-related activity, diversification means to become involved in a range of different activities or assets, with the goal of reducing exposure to any one particular risk. It is summed up by the saying of not putting all your eggs ...
How can a soda manufacturer vertically diversify?
For example, a soda manufacturer could vertically diversify by buying an aluminum manufacturer or a company that installs and maintains vending machines. In both cases, the idea is to reduce costs, increase revenues, or both, in order to capture a greater share of the money paid by the end consumer.
Horizontal Diversification – How it Works?
This diversification strategy works by first identifying a need for a new product and then coming up with a product to meet that need. A company planning such a diversification generally carries an in-depth analysis of its current customers. Also, a company may go for market research by surveying customers on what they want.
Real World Examples
Below are some of the most popular real-world examples of horizontal diversification:
Final Words
Horizontal diversification allows businesses to meet more than one need of their customers by offering them a wider range of products. It is the reputation and goodwill of a business that will encourage customers to buy and experiment the new products.
Sanjay Bulaki Borad
Sanjay Borad is the founder & CEO of eFinanceManagement. He is passionate about keeping and making things simple and easy. Running this blog since 2009 and trying to explain "Financial Management Concepts in Layman's Terms".
How do companies integrate vertically?
Companies can integrate vertically in two ways: backward or forward. Backward integration occurs when a company decides to buy another company that makes an input product for the acquiring company's product. For example, a car manufacturer is pursuing backward integration when it acquires a tire manufacturer.
What is the difference between vertical and horizontal integration?
While horizontal integration and vertical integration are both ways that companies grow, there are important differences between the two strategies. Vertical integration occurs when a business owns all parts of the industrial process while horizontal integration occurs when a business grows by purchasing its competitors.
What is horizontal integration?
Horizontal integration is the acquisition of a related business. A company that opts for horizontal integration will take over another company that operates at the same level of the value chain in an industry. Vertical integration refers to the process of acquiring business operations within the same production vertical.
How does vertical integration help a company?
Vertical integration helps a company to reduce costs across different parts of its production process. It also creates tighter quality control and guarantees a better flow and control of information across the supply chain . Further benefits of vertical integration include increasing sales and improving profits.
Why do companies need horizontal integration?
Horizontal integrations help companies expand in size, diversify product offerings, reduce competition, and expand into new markets. Vertical integrations can help boost profit and allow companies more immediate access to consumers. Companies that seek to strengthen their positions in the market and enhance their production or distribution stage ...
What happens when a company's customer base increases?
When a company's customer base increases, the new company can now boost its revenue. Finally, companies that opt for horizontal integration benefit from reduced competition in their industry, increasing the synergy between two companies (including marketing resources), and reducing some production costs.
What happens when two companies combine?
When two companies combine, they also combine their products, technology, and the services that they provide to the market. And when one company multiplies its products, it can also increase its consumer foothold. Along those same lines, companies can benefit from a larger customer base after horizontal integration.
