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.
Vertical Related Acquisition.
Vertical related acquisition (vertical integration) involves extending the production process back to the source of supply, or forward to the marketing are.
Four principal advantages are associated with vertical related acquisitions:
- Vertical chain economies may result from eliminating production steps, reducing overhead costs, and coordinating distribution activities to attain greater synergy.
- Vertical chain/horizontal scope economies can occur when a corporation's horizontally related or unrelated business units purchase from one of the corporation's business units that serves as a supplier.
- Vertical chain innovations refer to improvements or innovations that may be transferred or share among the corporation's business units in the distribution channel.
- A final advantages is a combination of vertical chain economies and chain innovations.