Question

what is vertical integration? give examples of backward and forward integration?

Answer 1

Vertical integration is a strategy where a firm acquires/combines business operations with in the same product vertical(supply chain) . It can help companies control costs by reducing transportation expenses, increasing operation efficency.

Vertical integration is further divided into

1. Forward integration

2. Backward integration.

1. Forward integration - it involves company expansion its control over the direct distribution or supply of company's product. Classic example is opening controlling the dispatch of materials till it reaches the final retailer. I.e. When an fmcg company choose to control the distribution cycle till it reaches the retailer/distributor

2.Back ward integration - it involves the company purchase or merger upward the supplier side. i.e for example when.a bakery dicides to integrate the raw materials seller let us say wheat flour to its own facility as a member or partner. It enables the bakery in improving the raw material capabilities

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