Horizontal Integration and Its Effects on Factors Leading to Firm’s Performance

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“Horizontal Integration and Its Effects on Factors Leading to Firm’s Performance”
Introduction
The exceptional space among the perceptive of a product being sent to the user who
purchases further it has some mandatory firms to participate & cooperate. “The procedure of
cooperation vanquished the costs at time when they face at individual procedure of the
production and delivery proceeding” (Charles & Gareth, 2009). “Despite, firms or organisation
not only cooperate but they also elaborate by consolidating other firms or organisation that are
inclusive of an activity affiliated to a greater (upstream) or minimal (downstream) level in the
production procedures as compare to the original firm or organisation, this is acknowledged as
backward or forward Horizontal integration respectively” (Miller et al, 2010). This is called as
the ‘horizontal integration’ and it is narrated as the concept of “the combination of
technologically distinct production, distribution, selling, and/or other economic processes within
the confines of a single firm.
Discussion
Our concentration will be depended upon the effects of horizontal integration regarding
performance of firms; hence, it will be excogitate as the advantages it includes for the firms,
although its internal costs to the company would be based upon the flexibility, management and
performance, as classified to demonstration whether horizontal integration is a competitive
solution in imperfect markets. As such, it represents a decision by the firm to utilise internal or 
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administrative transactions rather than market transactions to accomplish its economic purposes”
(Handfield & Nichols, 2002). Field of industrial organisation for its model infrastructure is
associated to the field of industrial organisation.
Firstly it would be acknowledged as the benefit of horizontal integration for firms in
terms of uncertainty, production and costs. Secondly, the concentration would be on the risks
involvement in the horizontal integration and the disadvantages would be elaborated upon the
factors of flexibility, management and performance (Shane, 2007). Ultimately the usage of the
information gathered to resolve whether horizontal integration is a turning out to be a beneficial
solution or not.
Benefits of Horizontal Integration
Increasing Firm’s Size and Reducing Uncertainty
As a matter of fact, integrating more companies in a single firm increases its size. A
larger company usually performs better than a small one, it is more stable and faces less risks.
Within horizontally integrated firms, all activities are under total control, so that the uncertainty
associated with the outsourcing disappears.
Consider a firm that uses a vital input in its production process, it has few power over its
activity as far as it is supplied by another firm for that vital input. Therefore, any change in price
decided by the supplier will affect the firm’s total costs, and the price it charges to customers.
This kind of problem does not arise in a horizontally integrated firm which coordinates the
activity of the supplying firm that delivers the input to the next stage which uses it in the
production process.
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As explained by Charles & Gareth, (2009) horizontal integration is helpful for reducing
uncertainty and for avoiding problems linked with vital inputs. With good synchronisation, firms
can produce more efficiently in order to perform better than the competitors.
Optimising Production and Making Economies
With good management, horizontally integrated firms have the ability to optimise
production and make economies. The firm will be able to calculate its marginal costs more easily
since it has access to all the relevant information from every producing department it owns. The
benefits of the availability of information were shown by Goldschmidt, (2005).
Thanks to its marginal cost function, which shows the additional costs associated with the
production of one more units, the firm is able to determine the optimal production level. The
production will stop a point where the costs of producing one more unit will be higher than the
revenue that comes from this unit.
The more precisely one knows about his firm, the more performance these firms have.
Such factors seen by Miller et al, (2010) show that horisontally integrated firms usually
outperform their competitors.
We can consider that economies are realised faster in such horisontally integrated firm..
Consider for example, costly internal management that would regard many production units,
such as scheduling. If these costs are divided by a larger number of departments, the cost per
department of the firm’s management is lower and economies are realised.
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This is explained by Shane, (2007) “adjacent location facilitates coordination and control
and changes in production may be easier to coordinate internally or coordination may occur more
rapidly”. Note that these economi