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As of today, the Apple Company has stores in fifteen different countries around the world. This idea is owed to the horizontal growth strategy. Apple is one of many who have followed this, apparent genius, strategy.
The Idea in a Nutshell
Horizontal Growth is process of acquiring new markets in other geographic locations. Horizontal Growth has shown itself profitable. Many companies such as, McDonalds, Coca-Cola, Apple, Microsoft, and Google have taken this strategy and ran with it.
The Top 10 Things You Need to Know About Horizontal Growth
1.Horizontal Growth is a process by which a company finds new customers in a different geographical location to buy existing products or services (Regala, 2010). Horizontal Growth has taken off allowing competition stakes to be raised with companies such as Apple, Google, and Microsoft. Forbes stated in an article that, “If not Gates and Microsoft, some other horizontally integrated attacker, not Apple, would have won the day. Because only horizontal integration allowed for the emergence of a powerful enough paradigm to challenge mainframes, and some player would have been in the Goldilocks zone (Rao, 2012).”
2.Horizontal Growth is continually becoming more prevalent across today's market. Horizontal Growth happens by way of internal development (organic growth), acquisitions, and strategic alliances (Riley, 2009). Acquisition, being the most common way, is the process of gaining controlling interest of another business. Some examples of acquisition are, Adidas buying Reebok in 2005, Kraft buying Cadbury in 2010, and most recently, Microsoft buying Skype in 2011, just to name a few (Riley, 2009).
3.Internal Development involves, but not limited to, designing and developing new product ranges, implementing marketing plans to launch existing products directly into new markets, opening new business locations (domestically or overseas), investing in research and development to support new product development, investing in additional production capacity or new technology to allow increased output and sales volumes, and training employees to help the best acquire new skills and address new technology (Riley, 2009). A strategic alliance is a partnership of two or more companies with an agreed up goal, often referred to as synergy (Riley, 2009). These are two of the more common forms of horizontal growth formulation.
4.One company that is well known for horizontal growth is Coca-Cola. Coca-Cola mentioned that their goal was not only to acquire more customers, but also give them quality customer service (Gouravawanishravi, 2009). One benefit of horizontal growth was to provide incremental volume and revenue for the company, said Coca-Cola (Gouravawanishravi, 2009). This also gave them an increase in market power.
5.The topic of horizontal growth doesn’t just stop there, it lead into horizontal integration. Horizontal integration is when a company operates in more than one geographic location at the same point on an industry’s value chain. One example of horizontal integration is when the Standard Oil Company Bought Forty additional processing plants (Internet Center for Management and Business Administration, Inc., 2010).
6.The advantage of horizontal integration is economies of scale (Walters, 2005). Economies of scales refer to the cost benefit of horizontal growth within a company (Regala, 2010). The overall end result is a fall in price per unit for a company (Regala, 2010). Another advantage of horizontal integration is economies of scope, often referred to as synergies (Internet Center for Management and Business Administration, Inc., 2010).
7.An example of horizontal integration is GAP Inc. GAP Inc. controls three distinct companies, Banana Republic, Old Navy, and the GAP brand itself. Each company has stores that market clothes tailored to appeal to different group (Unknown, 2012). Banana Republic sells more expensive clothes with a more "upscale" image, the GAP sells moderately priced clothes that appeal to middle-aged men and women, and Old Navy sells inexpensive clothes geared towards children and teenagers (Unknown, 2012). GAP Inc., Banana Republic, Old Navy has been very successful at controlling a large segment of the retail clothing industry (Unknown, 2012).
8.How would a company go about entering these other market? The entry options for horizontal growth consist of, exporting, licensing, franchising, joint venture, and acquisitions, just to name a few. While these approaches may not be easy, they are considered to be low-risk (Riley, 2009).
9.Although we all would love to every strategy succeed, but there are some disadvantages to horizontal growth (Internet Center for Management and Business Administration, Inc., 2010). One disadvantage of horizontal growth is, anti-trust issues may arise with heavily concentrated industries. Another disadvantage is whether the economic gains will materialize (Internet Center for Management and Business Administration, Inc., 2010). Before moving in the direction of horizontal growth, you must make sure that the potential expected growth is feasible (Unknown, 2010). Lastly, if the benefit of growth exists, there must be a strategy in place. The strategy will ensure a plan to materialize the growth benefits, because they do not spontaneously manifest upon entry (Internet Center for Management and Business Administration, Inc., 2010)
10. Apple, another popular company is testing the waters of horizontal growth. Apple Inc. is horizontally integrated in the transmission/distribution portion of the productions chain. The corporation manufactures not only computers and operating systems, but also handheld devices, such as the iPod and the iPhone (Fidorra, 2009).
The Video Lounge
Komilla Chadha created this YouTube video. Chadha explains the idea of growth of a firm. She points out several key elements in the video such as, How firms grow?, Why does a firm choose to grow or stay small?, and Horizontal Integration, just to name a few.
Horizontal growth is still and will continue to be a vital growth strategy for businesses. I see horizontal growth being an option for small companies and firms as a start in the right direction of growth. For the smaller companies and firms who cannot afford the luxury of adding new product lines to their brand, they can expand their current product into different local markets. This could be a stride from domestic distribution, gradually, into international Markets. There are many companies that could certainly vouch on this strategy.
Fidorra, N. J. (2009, December 9). Apple Inc.'s Vertical and Horizontal Integration. Retrieved October 17, 2012, from personal.psu.edu: http://www.personal.psu.edu/njf5012/blogs/nick_fidorras_comm_180_blog/2009/12/apple-incs-vertical-and-horizontal-integration.html
Gouravawanishravi. (2009, December 5). Analysis of Horizontal Expansion Strategy Of Coca-Cola Company In Ghaziabad. Retrieved October 17, 2012, from scribd.com: http://www.scribd.com/doc/23674898/Analysis-of-Horizontal-Expansion-Strategy-Of-Coca-Cola-Company-In-Ghaziabad
Internet Center for Management and Business Administration, Inc. (2010, 1). Strategic Management. Retrieved October 17, 2012, from QuickMBA.com: http://www.quickmba.com/strategy/horizontal-integration/
Rao, V. (2012, July 25). The Real Reason for Microsoft's Woes. Retrieved October 17, 2012, from Forbes.com: http://www.forbes.com/sites/venkateshrao/2012/07/25/the-real-reason-for-microsofts-woes/3/
Regala, R. (2010, January 07). Vertical or Horizontal Growth. Retrieved October 17, 2012, from scribd.com: http://www.scribd.com/doc/24902987/Vertical-or-Horizontal-Growth
Riley, J. (2009). Strategy - Growth: Introduction to acquisitions. Retrieved October 17, 2012, from tutor2u.net: http://www.tutor2u.net/business/strategy/growth_acquisitions_intro.html
Unknown. (2012). Horizontal Integration. Retrieved October 17, 2012, from Economic Expert.com: http://www.economicexpert.com/a/Horizontal:integration.htm
Walters, E. (2005). Horizontal Integration. Retrieved October 17, 2012, from 12manage.com: http://www.12manage.com/methods_horizontal_integration.html
About the Publisher
David C. Wyld (firstname.lastname@example.org) is the Robert Maurin Professor of Management at Southeastern Louisiana University in Hammond, Louisiana. He is a management consultant, researcher/writer, and executive educator. His blog, Business News 24/7, can be viewed at http://wyld-business.blogspot.com/. He also serves as the Director of the Reverse Auction Research Center (http://reverseauctionresearch.org), a hub of research and news in the expanding world of competitive bidding.