Horizontal business concentration

The concentration of horizontal business is the union of two or more companies dedicated to the same sector and located at the same level in the production chain.

Horizontal business concentration is a strategy to eliminate competition . How? Joining her. It would be what a well-known phrase says: If you can’t with your enemy, join him.

These companies will operate independently, although decisions will be made well by a parent company, or by agreement. The parent company is the company that is above all of the group. That is, the one that rules since it has a greater participation in the joint venture.

What is the horizontal business concentration for?

Companies use business concentration to get more power and thus be able to make more decisions. It is logical to think that if several companies dedicated to the same product or service join or cooperate, they will be stronger than the competition, if it acts alone.

They may, for example, acquire more quantity of raw material getting greater discounts, since they will have greater bargaining power with suppliers that will provide them with special conditions. Or they can offer their final product, or some of them, at a lower price, so they will be in a favorable position with respect to their competitors.

Example of horizontal business concentration

To understand the horizontal concentration we can think of the well-known Inditex by Amancio Ortega. A holding company, all of them dedicated to the textile sector. Zara, Massimo Dutti, Pull & Bear, Bershka, Oysho, Stradivarius, etc. They are clothing stores that sound to all of us and which we have probably gone to buy sometime.

If all these brands did not belong to the same group of companies, they would compete with each other, since although each one is aimed at a specific audience, it is clearly an example of horizontal business concentration.

by Abdullah Sam
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