QS Study

Differences between Horizontal and Vertical Combination

The horizontal combination is the association or merger of business organizations doing exactly the same type of business or trade. The organizations that are engaged in the successive stages of production or distribution come together to achieve some common end result then it is called vertical combination.

Horizontal and Vertical combination of business organizations is not same. There are some differences between them. These are:

Horizontal combination

  • Definition: the Horizontal combination is the association or merger of business units doing exactly the same type of business or trade.
  • Objectives: The main objects of forming such a combination are to eliminate competition and in some cases, to achieve economics production and distribution.
  • Formation: the Horizontal combination is easy to formulate.
  • Size: Horizontal combination size may be very large.
  • Advantages: It main advantages are it can eliminate competition and can get distribution and selling facilities.
  • Ownership: Its ownership may be different types.
  • Level of Production: This type of combination is suitable for the same kind of products.
  • Working Capital: The horizontal combination has no definite contract of raw materials so that it has to manage a large number of raw materials and it requires a large amount of working capital.
  • The certainty of Market: The market of the consumer products is certain because the horizontal combination produces according to the demand.
  • Stability: It has the stability of no longer.

Vertical combination

  • Definition: Vertical combination means the organizations engage in the successive stays of production or distribution come together to achieve some common ends results.
  • Objectives: The main objects of such a combination are to ensure regular supply of raw materials to avoid bungling and to maintain optimum production.
  • Formation: the Vertical combination is comparatively complex to form.
  • Size: Vertical combination may be short.
  • Advantages: It gets privileges to get raw-materials easily and for the division of labor.
  • Ownership: In this cases, the owner may be one or many.
  • Level of Production: It engages in production or distribution of products.
  • Working Capital: It doesn’t require the current working capital for the collection of raw materials.
  • A certainty of Market: It has the certainty of availability of the raw materials but no certainty on the ultimate consuming market of the products.
  • Stability: It has the strong stability to sustain.

These are the main differences a between the horizontal and vertical combination of business organizations. When the same kind of production needed the horizontal combination and the vertical combination is needed for different products production organizations.