Firms Incorporate Horizontal and Vertical Growth Strategies
Discuss how does horizontal growth differs from vertical growth as a corporate strategy? From concentric diversification? With examples.
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With the ever-growing changes in technological advancements and increased competition, many businesses employ growth tactics to keep their businesses afloat. Of course, companies consider buying relevant businesses that are in alignment with their corporate strategy and core competencies (Dhir & Dhir, 2015).
Many different growth tactics can increase a corporation’s revenue, profits, resources, assets, core competencies, and competitive advantages. This paper will evaluate whether there exists a difference between horizontal and vertical growth strategies from the concentric diversification approach.
To begin with, a horizontal approach is a growth strategy that focuses on merging, acquiring, or taking over other businesses that operate in the same industry (Dhir & Dhir, 2015). This strategy focuses on broadening a company’s footprint in the market.
A business can either be with domestic companies or global depending on its potential. An excellent example of a horizontal approach is when a business merges with another supermarket. One of the major benefits of the horizontal approach is that it helps a business to achieve economies of scale.
After merging business, a company has more production capability since it can buy more raw materials at a cheaper price. Another benefit is that it increases its lines of goods and services thus raising its revenues and profits.
On the other hand, the horizontal approach is subdivided into two aspects which are the backward and forward vertical approaches. The Backward vertical approach refers to a situation where a business joins another business in the same industry during the early stages of production (Dhir & Dhir, 2015).
For instance, a supermarket buying a food processing company. This strategy is beneficial since it increases business revenues. At the same time, this strategy denies the competitors the source of raw materials because it has control of the business.
The forward vertical approach refers to a situation where a firm joins or acquires another business operating in the same industry at later stages of production. An example is when a car company buys car showrooms. This strategy provides a company with a guaranteed market or outlet for its products.
Concentric growth occurs when a business establishes new products and services that are unique from those of its competitors but in alignment with the business goals.
A concentric growth strategy enables a business to penetrate into an untapped market through establishing new and unique products that distinguish them from its competitors (Kim, et al., 2017).
An example of concentric growth is a technology company that initiates new programs to run a business. This strategy is very crucial in providing clients with a new experience