The management control approach is another name for the integration strategy. As the name suggests, it gives the company the opportunity to exert control over multiple operations, such as rival businesses, suppliers, or distributors.
Horizontal integration and vertical integration are the two main forms and sub-categories of business integration strategy. The following are them:
Horizontal Integration: When battling the competition, businesses employ a horizontal approach. When a firm buys the supply chain systems of various industries that are active at the same level, it is implementing a horizontal integration plan.
In other words, horizontal integration in connected industries refers to the merger of a fast-food chain with the chain of the related industry in a different nation or international market.
Strategic Management Reasons: As is common knowledge, horizontal integration occurs when a corporation buys and merges with a different or comparable company. Businesses do it for a variety of reasons, including expanding into newer markets, lowering risks, creating distinctive products, achieving economies of scale, and growing their size and capabilities.
A very good illustration of horizontal integration is the purchase of 40 refineries by Standard Oil.
Horizontal integration typically delivers long-term advantages for the business’s strategy and planning. The business must therefore choose wisely. The business that is being acquired and merged with must meet consumer and market expectations. Prior to the merger, the organization must do a thorough study of its resources.
Advantages of Horizontal Integration: The following are some of the primary benefits of horizontal integration:
- Go into New Market: It is simpler for the firm acquiring a foreign company to enter the new market if they combine their operations.
- Market Influence: The target company’s client base is included in the acquisition when one company buys and merges with another overseas business. It would benefit the business to have access to larger markets for the distribution of its goods.
- Differentiation: Both businesses have the chance to exchange their skills and create something new through acquisition and merger. It has the effect of creating a brand-new, distinctive product.
- Scale economies: The overall cost of manufacturing is decreased when two organizations and companies combine their skills and experience for mass production.
Disadvantages of Horizontal Integration: To reap the benefits of horizontal integration, the acquiring company must be able to manage the larger organization. The following negative effects might occur if it didn’t;
- No Benefits: Although the hardware and software of the two companies don’t match, the merging companies anticipate certain benefits from the horizontal integration. The combination didn’t produce any of the anticipated synergies.
- Rigidness: The benefits of horizontal integration can sometimes be substantial and multifaceted. But as it grows, management and operational flexibility are lost. It becomes incredibly challenging to adjust the company’s functionality since it has become so rigid.
- Legal matters: The companies that are merging and acquiring should be aware of the legal implications. Serious legal problems would arise if the partnership between the two businesses turns into a monopoly and threatens to permanently shut down the operations of rivals.
