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The choice between vertical growth and horizontal growth is between expanding up and down one’s own supply chain and expanding into new markets.
Vertical growth has to do with expanding up and down one’s own supply chain. If a firm wants to grow vertically, it needs to buy up the firms that sell to it or the firms to which it sells. For example, if a car manufacturer wanted to grow vertically, it could do two things. It could buy suppliers such as glass companies and tire companies. On the other hand, it could buy up all of the distributors that buy cars from it and sell them to retail customers.
Horizontal growth has to do with growing into new markets. This can be accomplished by buying other companies that are in your same industry. A car manufacturer in the United States, then, could buy a car manufacturer in Europe if it wanted to expand into the European market.
Thus, these are both ways of expanding a firm’s business, but they are accomplished in very different ways.
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