IntroductionBusiness strategies are fundamental elements in the running of any particular business. This is because they provide the basic direction for strategic action. It is essential to take note of the fact that the success of any business in any particular sector is governed by its ability to implement the selected business strategies effectively. The technology sector, for instance, has transformed its corporate structures from vertical to horizontal groupings. What is evident according to current industrial analysis is that a turn back to vertical or even conglomerate business strategies is emerging, implying that any of the strategies could double as the basis for attaining the major long-term goals of any given firm.
This particular paper seeks therefore to explain both the advantages and disadvantages in general of firms in a horizontally integrated (or focused) sector against those in a more diversified businesses that are vertically integrated or conglomerates. Horizontal integration can be described as a long-term business strategy employed by a given firm or a business seeking to increase its market share. It occurs when a given firm is merged with, or taken over by a different firm in the same industry and operating at the same stage of production as the merged one.
In this case both the firms are in the same stage of production as well as in the same industry. The objective of horizontally integrated firms is normally to merge similar companies and control (monopolize) a particular industry (Megginson & Smart, 2008). The merger of UK’s two major television firms, Granada and Carlton, to form ITV forms an example of horizontally integrated firms. On the hand, vertical integration can be described as a long-term business strategy in which various steps in the production and distribution of a firm’s products or services are controlled by a single entity, so as to increase the entity’s power within a given market.
Usually each component of the supply chain produces a different product or a market-specific service, and the products and services combine to meet a common need. A good case in point is what happens within the oil industry whereby a lot of the leading firms take up the role of producers, refiners and explorers of the crude oil.
In addition they usually own individual retail networks that are used for the sale of diesel and petrol. Vertical integration can be undertaken through forward integration whereby the firm merges with another firm in order to forward the chain of supply. Backward integration is the second type where the business merges with another firm that exists at the previous level of supply (Megginson& Smart, 2008). Efficiency and EffectivenessOne of the advantages of firms in a horizontally integrated (or focused) sector against those in more diversified businesses that are vertically integrated is in terms of their increased efficiency and effectiveness.
As highlighted by Kazim (2008), the nature of strategy by firms in a horizontally integrated sector provides them with a unique advantage where small-sized organizations find it a challenge to prevail over in realizing the goals of efficiency and effectiveness. According to Kazmi (2008), firms in a horizontally integrated sector thrive both in terms of their operation functions and marketing, as a result, improving on their efficiency and effectiveness. For instance, when a horizontally integrated firm wants to sell its products in various geographical market segments, it is able to have several subsidiaries selling the same products and services widely; as a result, making the firm horizontally integrated as far as marketing is concerned.