Horizontal business concentration
The horizontal business concentration 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 cliché says: If you can't beat your enemy, join him.
These companies will operate independently, although decisions will be made either by a parent company or by agreement.The parent company is the company that is above all those of the group. That is to say, the one that commands since it has a greater participation in the joint business.
What is 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 will be able, for example, to acquire more quantity of raw material obtaining greater discounts, since they will have a greater power of negotiation with the suppliers that will offer them special conditions. Or they will be able to offer their final product, or some of them, at a lower price, so they will be in a favorable position compared to their competitors.
Example of horizontal business concentration
To understand horizontal concentration we can think of the well-known Inditex by Amancio Ortega. A holding of companies, all of them dedicated to the textile sector. Zara, Massimo Dutti, Pull & Bear, Bershka, Oysho, Stradivarius, etc. They are clothing stores that sound familiar to all of us and to which we have probably gone to buy sometime.
If all these brands did not belong to the same group of companies, they would be in competition with each other, since although each one is aimed at a specific audience, it is clearly an example of horizontal business concentration.Horizontal analysis