Differences Between Horizontal and Vertical Growth
What is the difference between horizontal growth and vertical growth? Name a real-world company that focuses more on horizontal growth and a company that focuses more on vertical growth. Why do these two companies choose different growth strategies?
- Student: April Cangrejo
- Textbook: N/A Course Discussion
- Course: MGT 498 Discussion Question
When a company is pursuing horizontal growth, they are attempting to expand within the same general market. For example, a company that sells retail T-shirts would pursue horizontal growth by finding new distributers for their shirts and releasing new styles. In contrast, a company that pursuing vertical growth is looking to expand to different points in the supply chain. In this case, the T-shirt company would expand into the textile manufacturing industry to grow vertically. Ultimately, the choice of a growth strategy will be dependent on the way managers believe they can offer the highest return on equity to shareholders.
A company that focuses on horizontal growth is Starbucks (Ticker SBUX). They are constantly working to open new coffee shop locations because this is the primary way they create value for customers. They do not attempt to move into the coffee bean agriculture business.
A company the focuses on vertical growth is First Solar (Ticker FSLR). This company produces solar panels and has completed numerous acquisitions of smaller companies within their supply chain. Being vertically integrated allows the company to offer lower priced solar panels to their clients.