Strategic Management: Formulation and Implementation

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: