Mgt 498 Week 3 DQ's
1. What is the difference between horizontal growth and vertical growth? Name a real-world company that focuses more on horizontal growth and a company that focuses more on vertical growth. Why do these two companies choose different growth strategies?
A horizontal growth is achieved when the firm is merged or taken over by another firm which is in the same industry and same stage of production. The purpose of horizontal growth is to eliminate competition, increase market share, and economies of scale. On the other hand vertical growth is achieved when firm is merged or taken over by another firm in the same industry but not in the same stage of production. A firm buying its upstream buyer is known as forward integration, and a firm buying its downstream supplier is known as backward integration. The advantage of vertical integration is that it reduces the dependence on its suppliers and allows the firm to capture more shares in the value chain. The Standard Oil Company of USA is an example of company which focuses more on horizontal growth by acquiring 40 refineries. The motive is to create monopoly and increased market share. Shell is an example which focused more on vertical integration. The company is involved in oil exploration but in 1970’s and 1980’s decided to acquire downstream refineries and distribution network. The motive of this action is to increase the power of the company in value chain.