Q:

What are disadvantages of horizontal integration?

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Quick Answer

Two primary disadvantages to horizontal integration include dealing with government approval of the plan and realizing anticipated benefits. Even if the plan goes through smoothly, the time it takes for the benefits to emerge can be much longer than planned.

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Full Answer

Horizontal integration is the process of merging with or acquiring another company so that the two businesses can combine with one another to increase efficiency and market share or reduce costs. Government interference may be the greatest disadvantage to horizontal integration, stopping the process before it even begins. This is due to monopoly concerns, especially if the merger or acquisition results in too large of a market share.

After the integration is complete, the next disadvantage lies in actually achieving the synergy between the two combined units that makes the merger or acquisition worthwhile. There could be expensive overlap of products or personnel, difficulty in developing a combined corporate culture or the size of the new unit may make it difficult to run the new entity.

Even when successfully integrated, the planned benefits from the merger or acquisition may be slow to materialize. Both during and shortly after horizontal integration, the newly combined unit lacks flexibility, making changes to the original implementation plan difficult and slow.

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