Vertical and Horizontal Integration

Vertical Integration, Horizontal Integration

Vertical integration is the integration of firms engaged in successive stages in production of goods.

Horizontal integration is the expansion of a corporation to include other previously competitive enterprises within the same sector of goods or service production.

Horizontal integration takes place when one candy maker takes over another candy maker.

This process of horizontal integration is characteristic of capitalist economies which have a marked tendency to sectoral concentration into fewer and fewer enterprises and business conglomerates.

Vertical Integration

Vertical integration is the integration of firms engaged in successive stages in the production of goods. Andrew Carnegie introduced the idea of vertical integration.

There are three varieties: backward (upstream) vertical integration, forward (downstream) vertical integration, and balanced (horizontal) vertical integration.

Vertical integration is degree to which a firm owns its upstream suppliers and downstream buyers.

Vertically integrated companies are united through a hierarchy with a common owner. Each member of the hierarchy produces a different product or service, and the products combine to satisfy a common need. Vertical integration is one method of avoiding the hold-up problem. A monopoly produced through vertical integration is called a vertical monopoly, although it might be more appropriate to speak of this as some form of cartel.

Backward vertical integration
Here, the company sets up subsidiaries that produce some of the inputs used in the production of its products. For example, an automobile company may own a tire company and a metal company. Control of these subsidiaries is intended to create a stable supply of inputs and ensure a consistent quality in their final product.

Forward vertical integration
Here, the company sets up subsidiaries that distribute or market products to customers or use the products themselves. An example of this is a movie studio that also owns a chain of theaters.

Balanced vertical integration
Here, the company sets up subsidiaries that both supply them with inputs and distribute their outputs.
For example, a restaurant chain owns the farms where they produce agricultural products as well as the factories that processes these agricultural products is practising backwards vertical integration. Forwards vertical integration would mean that they would own the regional distribution centers and shops or fast food restaurants where the hamburgers are sold. Balanced vertical integration would mean that they own all of these components.

Vertical vs. Horizontal Integration: Pre-emptive Merging 
Giuseppe Colangelo 
Abstract: Pre-emption often plays a crucial role in firms' merger decisions. We study whether and under which circumstances pre-emptive merging occurs in vertically related industries. 
We find that vertical mergers often pre-empt horizontal mergers and are dominant outcomes. Pre-empting the threat of a detrimental horizontal integration may be the main reason for vertically integrating. - essex.ac.uk/jindec/tocs/abstract/toc0995/pp323337.htm

Horizontal Integration in Markets for Complementary Components and Vertical Product Differentiation: A Case-based Analysis in the Semiconductor Industry 
BASTIAN WESTBROCK, University of Utrecht - Tjalling C. Koopmans Research Institute 
Abstract: Observation of recent mergers and acquisitions in the semiconductor and computer industry indicate that activities concentrate on the technology leaders in this market. I examine the coherence between technological heterogeneity and concentration of merger activities in a case study about a merger wave between suppliers of two semiconductor component markets. The story is rationalized in a two-stage competitive game with merger decisions in the first stage and product market competition in quantities in the second stage. I also evaluate the social desirability of the equilibrium industry structure. Technological heterogeneity is represented in a vertically differentiated product space in the model. - papers.ssrn.com/sol3/papers.cfm?abstract_id=637641

Horizontal Integration in Knowledge Management
Horizontal Integration in Knowledge Management can be defined as the distribution of knowledge across diverse business units. A lesson learned captured by the manufacturing group then used by someone in technical support to help solve a problem would be an example of Horizontal Integration. A corporation’s most valuable assets are its workforce and information assets. Horizontal Integration improves the value of both assets by better educating the workforce and improving the usage (i.e. value) of information.
Vertically integrated knowledge management systems, also sometimes referred to a stove piped systems, collect and disseminate information to a specific business unit up and down the chain of command. An example of vertical integration would be a system used by only the sales group that collects information about sales leads and disseminates that information to individuals throughout the chain of command.
The majority of information systems today are more vertically integrated then horizontally integrated. Reasons for this include political, technical, and financial reasons.... - chrisbunk.com

Horizontal Integration and Relational Contracting: An Application to Local Public Services - Claudine Desrieux - Université Paris I Panthéon-Sorbonne - Centre Maison des Sciences Economiques
Eshien Chong - University of Paris XI - ADIS GRJM
Stéphane Saussier - IAE - University of Paris I Sorbonne
August 26, 2008
Abstract: Legal frameworks, especially in Europe, encourage private participation and competition in the management of public services. However, many local public authorities concentrate the various services they have in charge in the hands of a single operator, leading to horizontal integration which a priori minimizes the positive effects of competition. The following article tries to understand why vertical disintegration is regularly combined with horizontal integration. Results of our model show that under some conditions, this may lead to better performance at lower cost for the public authority. Such a proposition is tested and corroborated using an original database concerning the contractual choices made by 5000 French local public authorities in 1998 and 2001.

Medellin and the Horizontal Integration of International Human Rights Law in US Courts - McGuinness, Margaret.
Abstract:
Medellin v. Dretke and its antecedent cases reflect the success of horizontal transnational networks in “bringing international law home” to adjudication of death penalty cases in the United States. Despite the importance of horizontal processes, i.e., the transnational interactions between NGOs, defense counsel and foreign governments, they have been largely ignored in the discussions of “vertical processes," e.g., the effect of ICJ decisions in U.S. courts and the ability of the federal courts to direct state court review on grounds of treaty obligations. This paper addresses that gap.
The article proceeds in three parts. Part One traces the objects and purposes of the notification provision of the Vienna Convention on Consular Relations at issue in Medellin by examining the history of the U.S. consular practice, the judicially cognizable rights raised by the Convention, and the extent to which the consular function is itself a mechanism of norm transferal. Part Two is an empirical case study of Medellin (and its precursors) and the use of non-notification under the VCCR in capital cases to describe the interactive process of norm transferal through a horizontal transnational network. Part Three describes how the case study can be explained in part by current theories of horizontal norm integration including transnational legal process (Koh) and transnational networks (Slaughter) and will also address the extent to which horizontal processes raise unique challenges to national sovereignty and democratic control over norm-creation.

Vertical and horizontal integration of knowledge and skills - a working model.
Snyman WD, Kroon J., Faculty of Health Sciences, School of Dentistry, University of Pretoria, Pretoria, South Africa.
The new integrated outcomes-based curriculum for dentistry was introduced at the University of Pretoria in 1997. The first participants graduated at the end of 2001. Educational principles that underpin the new innovative dental curriculum include vertical and horizontal integration, problem-oriented learning, student-centred learning, a holistic attitude to patient care and the promotion of oral health. The aim of this research project was to develop and assay a model to facilitate vertical integration of knowledge and skills thereby justifying the above mentioned action. The learning methodology proposed for the specific outcome of the Odontology module, namely the diagnosis of dental caries and the design of a primary preventive programme, included problem-solving as the driving force for the facilitation of vertical and horizontal integration, and an instructional design for the integration of the basic knowledge and clinical skills into a single learning programme. The paper describes the methodology of problem-oriented learning as applied in this study together with the detail of the programme. The consensus of those teachers who represent the basic and clinical sciences and who participate in this learning programme is that this model is practical and can assist vertical as well as horizontal integration of knowledge.

Vertical-integration-vs-horizontal in advertising industry - "An alternate solution for design firms keen on growing would be to take the route of integrating their services vertically. Here, the design studio offers design and creative direction, a manufacturing or prototype or production unit can offer prototyping and production services, and the potential for growing into a strategic consultancy remains. Frogdesign, now part of Flextronics, would an excellent example of the potential of this approach. Flextronics has the OEM and prototyping facilities, with links to mass manufacture, while Frog provides the design and creative direction. Were they to create a planning unit, like a Jump Associates or a StoneYamashita, say, the vertical chain would be complete. The core competency would remain industrial design say, unlike the horizontal spread of the full service model which dilutes the specialization or core competency identification and adds another firm to the pool of undifferentiated design studios." - sizematter.blogspot.com/2005/08/vertical-integration-vs-horizontal.html

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