Certified Financial Management Specialist Practice Exam

What type of integration involves acquiring a business that operates at the same level of the value chain?

1. Horizontal Integration

2. Vertical Integration

3. Conglomerate Integration

4. Market Expansion

The correct answer is: Horizontal Integration

The chosen answer, horizontal integration, refers to the strategy of acquiring or merging with a company that operates at the same level of the value chain within the same industry. This form of integration allows a business to increase its market share, reduce competition, and enhance economies of scale. By consolidating operations with a competitor or a similarly positioned firm, a company can effectively streamline processes, reduce costs, and benefit from shared resources. For example, if a company that manufactures bicycles acquires another bicycle manufacturer, it is engaging in horizontal integration. Both companies are producing similar products and competing within the same market, and the acquisition can lead to enhanced bargaining power with suppliers and a broader customer base. In contrast, vertical integration involves acquiring businesses that operate at different stages of the production process and can take the form of either backward integration (acquiring suppliers) or forward integration (acquiring distributors). Conglomerate integration refers to diversifying into different industries or sectors that are not directly related to the core business. Market expansion typically involves increasing a company's geographical footprint or reaching new customer segments without necessarily acquiring other businesses.