This article will help you to learn about the difference between horizontal and vertical integration.
Difference between Horizontal and Vertical Integration
Horizontal Diversification (Integration)
1. Nature:
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. Thus, it is flexible in nature.
4. Power:
Horizontal diversification increases the status and power of firms that have diversified business lines.
5. Competition:
Horizontal diversification reduces competition as competing firms may join together.
6. Aim:
Horizontal diversification aims to have greater control over resources.
7. Specialization:
It does not lead to specialization in production and sales.
8. Forms:
Concentric and conglomerate integration (diversification) are the common forms.
Vertical Diversification (Integration)
1. Nature:
The same business line joins with its backward or forward linkages. New products are complementary to the existing products.
2. Size of operations:
Vertical diversification enlarges the operations at different stages of production and, therefore, does not provide economies of scale.
3. Flexibility:
Failure of work at any stage of production disrupts the entire work schedule. It, thus, lacks flexibility.
4. 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.
6. Aim:
It aims to achieve self-sufficiency in performing organisational operations.
7. Specialization:
Vertical diversification leads to specialization in production and sales.
8. Forms:
Backward and forward integration are the common forms.