Horizontal & Vertical Growth and Concentric Diversification
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How does horizontal growth differ from vertical growth as a corporate strategy? From concentric diversification?
Horizontal growth is the expanding of a firm's activities into other geographic regions and/or by increasing the range of products and services offered to current markets. Vertical growth, in contrast, involves a firm's taking over a function previously performed by a supplier or a distributor. Concentric diversification, in contrast, is the addition of products or divisions, which are related to the corporation's main business, but are added because of the attractiveness of other industries rather than because they support the activities of the current product lines.
Please discuss these three strategies with some relevant examples.
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Solution Summary
How does horizontal growth differ from vertical growth as a corporate strategy is explained.
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Horizontal Integration
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Horizontal Integration involves addition of parallel new products to the existing product line. This may happen internally or externally, internally, a company may decide to enter a parallel product market in addition to the existing product line.
Externally, a company combines with a competing firm. For example, Sparta Ceramics India Ltd. took over Neyveli Ceramics and Refractories Ltd. (Neycer). Both the companies are in sanitary ware and tiles business. Two or more competing firms are brought together under single ownership and control. Seven small cement firms combined and formed Associated Cement
Companies (ACC).
* Advantages
1. Wasteful competition among the combining firms is removed.
2. It provides economies of large-scale production and distribution.
3. It provides better control over the market and increases the competitiveness of the company.
4. The firm gets better control over supply and prices of the product.
* Disadvantages
1. The firm is not confident of supply of raw materials.
2. If many firms combine to form horizontal integration, there is a risk of over- capitalization.
3. The management of the firm may become bureaucratic and inflexible.
4. The firm may acquire exploit consumers and labor by becoming a monopoly.
Vertical Integration
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In vertical integration new products or services are added which are complementary to the present product line or service. New products fulfill the firm's own requirements by either supplying inputs or by serving as a customer for its output. In vertical integration the firm moves backward or forward from the present product or service. Vertical ...
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