Horizontal Related Acquisition.
When a corporation acquires a business that is in an industry outside of its present scope of operations but is related to the corporation's core competencies, the corporation has engaged in horizontal related acquisition.
Three major potential advantages are associated with horizontal related acquisitions: horizontal scope economies, horizontal scope innovations, and a combination of the two:
- Horizontal scope economies occur when a firm's multiply business units are able to transfer or share purchasing, research and development, marketing or other functional activities at a lower total or per unit cost than would be available if the business units did not share.
- Horizontal scope innovation refers to improvements or innovations that can be transferred or shared across the corporations's business units.
Horizontal Unrelated Acquisition.
Horizontal unrelated acquisition or conglomerate diversification occur when a corporation acquires a business in an unrelated industry. Whereas horizontal related acquisitions are based on the premise of strategically managing and coordinating related businesses to create synergy and value, conglomerate diversification decisions are made primarily for financial investments reasons.
Conglomerate diversification is simpler than horizontal related acquisition because it is based on analyzing the financial potential of an enterprise and its industry without concern for the potential synergistic effects of combining core competencies. However, bureaucratic costs tend to increase with unrelated acquisitions. Therefore, firms are well advised to undertake a cost-benefit analysis before acquiring unrelated businesses.