Horizontal integration: Definition, examples, and pros and cons

Growth is a top priority for all businesses this year. We learned in our 2024 Intuit QuickBooks Business Solutions Survey that 82% of businesses are prioritizing expansion over the next year. With 86% focusing on increasing revenue and profitability, horizontal integration can be a compelling route for CFOs and executive teams to consider, but it can present challenges and attract regulatory attention. 

In this article, we’ll cover the key concepts of horizontal integration, real-world horizontal integration examples, and important considerations to help you decide if this strategy suits your business goals. 

Horizontal integration defined

When a company chooses the horizontal integration strategy, it expands by acquiring or merging with a competitor that performs similar functions within the supply chain or industry. Vertical integration, however, extends across supply chain levels and strengthens the business in different ways. More on this in the following sections.

Horizontal integration keeps the business within its current market, aiming to grow market share and reduce competitors. This strategy aims to optimize resources and boost revenue by expanding products or distribution channels. 

3 key forms of horizontal integration

Horizontal integration can be achieved in a few ways, each with its own advantages and challenges. The three main methods are mergers, acquisitions, and internal expansion.

Method 1: Merger

Mergers bring two companies together, combining resources, expertise, and customer bases into one stronger entity.

A good example of horizontal integration is the 2020 merger between Fiserv and First Data. This merger allowed Fiserve, a financial technology provider, to enhance its payment processing capabilities and broaden its customer base by integrating First Data’s expertise in merchant payment solutions.   

For mid-sized businesses, mergers can accelerate growth, often reducing operational costs through shared resources and economies of scale. Merging with another company in the same industry can streamline processes—such as production, distribution, and administrative functions—enhancing efficiency and boosting profitability. 

A merger offers immediate access to new markets and capabilities, allowing businesses to scale faster than they could through organic growth alone. But even with meticulous planning to harmonize differing cultures, systems, and workflows, some mergers face scrutiny for potentially taking options away from consumers. 

Method 2: Acquisition

In an acquisition, one company fully buys another, integrating its assets, operations, and workforce to enhance market position and capabilities.

A notable example of horizontal consolidation through acquisitions is Salesforce’s acquisition of Tableau. This acquisition allowed Salesforce to integrate Tableau’s powerful data visualization and analytics platform into its broader suite of cloud-based business solutions, strengthening its position in the data-driven enterprise market.

Acquisitions offer mid-sized businesses a way to grow quickly by absorbing the acquired company’s customers, technology, and market presence. This can lead to faster market entry, streamlined operations, and access to new products or regions. Additionally, the acquiring company often retains its own brand name and control over strategic decisions, maintaining its identity and operational autonomy. 

However, acquisitions can be challenging, often involving complex integration of goals, processes, and company cultures. Misalignment may lead to operational disruptions, increased costs, and a loss of key talent, potentially outweighing the expected benefits.

Method 3: Internal Expansion

Internal expansion involves scaling a company’s existing operations to enter new markets or expand offerings. While not always labeled as “horizontal integration,” this approach serves similar purposes, allowing companies to grow within their industry.

For mid-sized businesses, internal expansion might involve opening new locations launching new products, or leveraging existing infrastructure to move into new markets. A prime example is HubSpot’s development of HubSpot Academy. Initially focused on marketing automation tools, Hubspot expanded its offerings by creating an education platform that provides free resources and certifications. 

This approach allows for controlled, gradual growth, strengthening the company’s market position without the risks of blending cultures or facing regulatory issues common in mergers or acquisitions.

Though it requires substantial resources and time, internal expansion enables companies to deepen customer relationships and reinforce brand identity at a sustainable pace. Using an ERP system during and after expansions, streamlines operations integrates processes, and provides real-time insights, ensuring a smoother transition, and long-term scalability.

Horizontal vs. vertical integration

While horizontal integration aims to grow a company’s presence within the same industry, vertical integration is about gaining control over different stages of the supply chain. 

Through vertical integration, a company might oversee distribution, retail, or production processes by acquiring its suppliers or distributors.

HubSpot’s acquisition of The Hustle in 2021 allowed the marketing and CRM platform to expand its content marketing offerings while remaining focused on serving businesses within the same industry. The Hustle, known for its business-focused newsletters and media content, gave HubSpot a new avenue to engage its audience.   

By contrast, Amazon illustrates vertical integration by managing multiple stages—from warehousing and distribution to direct product sales —allowing it to optimize across the supply chain. 

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Pros and cons of horizontal integration

While horizontal integration offers strategic benefits, there are also challenges. Below is a breakdown of the primary pros and cons of horizontal integration:

The major advantages include: 

• Increasing efficiencies: Combine operations, marketing, and technology
• Achieve economies of scale: Spread fixed costs over large production volumes to lower per-unit costs
• Strengthen market presence: Expand reach and competitive edge to outpace rivals
• Broaden offerings: Offer customers a wider range of products or services

However, there are some disadvantages to horizontal integration, including: 

• Risking regulatory scrutiny: Greater market control can lead to antitrust reviews
• Facing integration challenges: Complex mergers may reduce flexibility
• Managing cultural alignment: Merging teams may lead to organizational clashes

Horizontal integration impact on market power and competition

When companies pursue horizontal integration, they often change the competitive dynamics of their industry. 

Market concentration

Horizontal integration often leads to higher market concentration, where fewer companies control a greater market share. While this can boost the integrated company’s price control and bargaining power, it may limit consumer options and impact market diversity.

For instance, after Facebook acquired Instagram, it gained dominance in the social media space, potentially shaping market dynamics, user options, and advertiser costs.

Monopoly concerns 

As companies gain control through integrations, there’s a risk of monopoly behavior, where excessive dominance reduces competition. This can stifle innovation, restrict market entry for new players, and drive up consumer prices. Major mergers in industries like technology and telecommunications frequently undergo regulatory scrutiny to ensure competitive fairness.

Regulatory and antitrust issues

Regulatory agencies actively monitor horizontal acquisitions to reduce anti-competitive practices. Antitrust laws protect consumer interests and keep markets open to competition. 

When an acquisition or merger threatens to create a monopoly, regulators may impose restrictions or block the deal, as seen in the JetBlue and Spirit Airlines merger we mentioned earlier.

If the Federal Trade Commission (FTC) and DOJ have reason to believe that a merger violates antitrust laws, the deal can be blocked. And existing mergers that have subsequently harmed competition can also be investigated.

Examples of horizontal integration

Horizontal integration is a growth strategy that works for many businesses. Here are some notable examples of horizontal integration:

• Disney and Pixar: When Disney acquired Pixar, the business enhanced its animation capabilities and combined creative resources, resulting in blockbuster hits earning billions. This strategy strengthened Disney’s market dominance in animated movies and expanded its creative offerings. 
• Disney and Marvel: Disney’s acquisition of Marvel Entertainment helped the business go beyond the princess market, adding superheroes to its portfolio. The Marvel Cinematic Universe diversified Disney’s offerings and strengthened its position in the action-adventure film genre, drawing wider audiences and driving record revenues.
• Facebook and Instagram: Facebook’s acquisition of Instagram was a strategic move to capture a younger demographic and solidify its hold on the social media landscape. By integrating Instagram’s platform, Facebook expanded its user base and enhanced its advertising capabilities, leveraging Instagram's popularity for increased engagement and revenue. 
• Marriott and Starwood Hotels: The merger of Marriott International and Starwood Hotels created the world’s largest hotel chain, significantly increasing Marriott’s market share. This horizontal integration allowed the company to enhance its global presence, offer more choices to customers, and achieve economies of scale through streamlined operations.

Boost productivity and enhance profitability

For mid-sized businesses, implementing a horizontal integration strategy opens doors to new resources and strengthens market position.

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