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:

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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:

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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:

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Horizontal diversification aims to have greater control over resources.

7. Specialization:

It does not lead to specialization in production and sales.

8. Forms:

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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:

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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:

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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:

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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.