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Horizontal Boundaries of the Firm

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Horizontal Boundaries of the Firm

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    1. Horizontal Boundaries of the Firm Chapter 2 Concepts Dean Foods Company Examples and Discussion By Jack Arizcuren Jon Shadle Oriana Olson Derek Groppetti

    2. What are Horizontal Boundaries Identifies the quantities and varieties of products and services a firm produces. The expansion of a company by purchase or acquisition of similar products or services

    3. Horizontal vs.Vertical Integration Horizontal is the production of a different product, using the same inputs. Doesn’t cross the value chain barrier. Vertical integration is when a manufacture expands upstream or downstream in the production chain, changing the quality of a product.

    4. Examples of Horizontal Integration Standard Oil Companies acquisition of 40 refineries Ford Automobile acquisition of Jaguar Media companies ownership of radio, television, newspapers, books, and magazines

    5. Advantages of Horizontal Integration Economies of Scale Economies of Scope Increased Market Power Brand Name Recognition Diversification

    6. What is Economies of Scale? Economies of Scale- achieved by selling more of the same product. This will make the average cost decline as output increases, but will eventually rise as production reaches capacity constraints.

    7. What is Economies of Scope? Economies of Scope- achieved by sharing resources common to different products. By using common resources a firms savings will increase as the variety of goods or services increase.

    8. The Four Major Sources of Scale and Scope Economies Indivisibilities and the spreading of fixed cost Increased productivity of variable inputs Inventories The cube-square rule

    9. Economies of Scope & Scale Present whenever large-scale production, distribution, or retail processes have a cost advantage over smaller processes. They effect pricing and entry strategies. Not always available in some industries.

    10. How do they differ? Scale deals with quantities of products or services Scope deals with the variety of products or services

    11. Horizontal Integration Advantages Cont. Increased Market Power- over suppliers and downstream channel members Brand Name Recognition- customer. perception of a linkage between products. Diversification- less effected by industry swing

    12. Disadvantages Beyond a certain size bigger is no longer better Anti- Trust issues can arise Difficult control

    13. Dean Foods Company Is the Nations largest processor and distributor of milk and other dairy products Also a leader in soy foods and other specialty products Other acquisitions include Horizon Organic, Consolidated Container Company, and White Wave

    14. Deans Foods Products Fresh milk and cream products Dairy-related beverages, juices, juice drinks and bottled water Ice Cream & Novelties Yogurt, cottage cheese and sour cream Dips & dressings Coffee creamers Soy products Pickles and specialty sauces

    15. Suiza Foods Corporation History 88’ purchase Reddy Ice, a commercial ice business 93’expanded into dairy business with purchase of dairy in Puerto Rico 97’ merger with Morningstar Group Inc. to expand value-added dairy products

    16. Dean Foods History 1925 Samuel Dean Sr. start evaporated milk processing plant 1925-1961 Dean Foods experiences growth and economies of scale with purchases of additional plants 62’ Enters the pickle industry

    17. Dean Foods Company History December 21, 2001: The "new" Dean Foods is born when Suiza Foods Corporation's acquisition of Dean Foods Company is complete. Suiza changes its name to Dean Foods Company and its "ticker symbol" on the NYSE changes from "SZA" to "DF." The company's headquarters are located in Dallas. May 9, 2002: Dean Foods acquires Boulder, Colo.-based White Wave, Inc., maker of Silk®, the nation's leading refrigerated soymilk. May 8, 2003: Dean announces realignment of organization to sharpen focus on strategic brands by creating the Dean Branded Products Group, which is responsible for marketing and selling Dean's nationally branded products. Morningstar Foods transfers all dairy manufacturing assets to Dean Dairy Group and changes name to Dean Branded Products Group.

    18. Result of Horizontal Integration DAIRY PROCESSORS Annual Sales * 1. Dean Foods (Suiza Foods Corp). $9,260 Million 2. Kraft Foods (Philip Morris) $4,000 Million 3. Dairy Farmers of America $2,858 Million 4. Land O’Lakes $2,684 Million Source: *Dairy Foods: Dairy Top 100 (2001)

    19. Benefits to Deans Food Company of Integration Strong market share on processed milk industry Acquisitions in organic and soy milk have created leverage in entire industry Acquisition of numerous brand name products such as Alta Dena and Land Lakes

    20. Disadvantage of Dean Foods and Suiza Foods Merger The Justice Department told Suiza Foods Corp. and Dean Foods Corp. they must sell 11 plants in eight states to resolve antitrust issues related the $1.5 billion merger. Since milk is an American staple, The Justice Department wanted this product to continue to receive the benefits of competition. Source: CNN Money

    21. Sources www.cnnmoney.com www.deanfoods.com Dairy Foods: Top 100 Economies of Strategies Besanko, Dranove, Shanley www.quickmba.com

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