Horizontal Integration Rationale
Retail chains in Europe are beginning to reap from the benefits of horizontal and vertical mergers and acquisitions (Pilsbury & Meaney, 2009, p. 5). Horizontal mergers are the integration of organizations in the same section of the value chain such as two road freight companies (Pilsbury & Meaney, 2009, p. 5). On the contrary, a vertical integration is a merger between organizations from various sections of the value chain. An example would be road freight and infrastructure (Pilsbury & Meaney, 2009, p. 5). In this regard integration between Wal-Mart and Lianhua Supermarket Holdings Co.
Ltd would be considered as a horizontal integration since both are supermarket chains (Barney & Hesterly, 2008). When examined from the context of service quality, any form of integration whether vertical or horizontal would give Wal-Mart greater control in the way goods and services are distributed (Pilsbury & Meaney, 2009, p. 5). An example of such control can be in the form of an increase of cooperation and communication involved in the value chain upon the vertical integration of some components (Pilsbury & Meaney, 2009, p.
9). For example, a reduction in delays as a result of the integration is likely to allow Wal-Mart to be even more competitive on quality. Wal-Mart can choose from three various merger options; the first option being a horizontal merger (Pilsbury & Meaney, 2009, p. 9). This is a merger between organizations producing and selling competing products. Second is vertical merger which would involve a relationship between a buyer and a seller (Pilsbury & Meaney, 2009, p. 9).
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The final option would be the conglomerate merger; which would involve Wal-Mart and another company neither operating in retail business not having a buyer seller relationship with Wal-Mart (Barney & Hesterly, 2008). Irrespective of the kind of integration that Wal-Mart chooses, this rationale also indicates that the company has the required competitive edge thereby capable of profitably purchasing Lianhua Supermarket Holdings Co. Ltd. , China’s #1 grocery retailer.
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