It will be an extra burden on the Company’s balance sheet, which may be in the form of debt or reduction cash and cash equivalents. It will ensure that the Company receives adequate supplies as and when required without worrying about raw materials being sold to the competitor or not produced /manufactured by the suppliers. A vertical integration is when a firm extends its operations within its supply chain. These strategies are one of the major concerns while developing future plans for an organization. In some cases, it can be more efficient and cost-effective for companies to rely on independent distributors and suppliers. That allows integrated suppliers to adapt more quickly to new trends. The Company gains control over the raw material suppliers by integrating them with their ongoing business. a retailer buys a wholesaler, a brewer buys a hop farm. Thus, vertical integration takes the form of expanding business backward into the sources of supply and forward toward the products’ users. Backward Vertical Strategy Integration. In 2009, it opened its own dedicated publishing division, acquiring the rights to both older and new titles. Oil, Gas and Energy | BP, Shell, and ExxonMobil. Backward integration often involves is buying or merging with another company that supplies its products. Companies pursue backward integration when it is expected to result in improved efficiency and cost savings. Vertical integration involves the merger of two or more companies which are at different points on the supply chain. Although the company might realize cost savings, the cost of the additional debt might reduce any of the cost savings. Backward integration is a form of vertical integration in which a company expands its role to fulfill tasks formerly completed by businesses up the supply chain. Vertical integration can provide some level of flexibility by allowing information to feed backward in the supply chain. An example of backward integration might be a bakery that purchases a wheat processor or a wheat farm. This will increase the size of the Company, thus bringing in new policies for the employees and leading to a bureaucratic culture in the Company. A supply chain is a network of entities and people that work directly and indirectly to move a good or service from production to the final consumer. In understand backward (upstream) vertical integration let’s take a look into one of the most powerful companies in Poland, TAURON Group. Netflix Inc., which started out as a DVD rental company supplying TV and film content, used backward integration to expand its business model by creating original content. When a firm gets involved in new portions of the value chain. For example, a company might buy their supplier of inventory or raw materials. backward integration the joining together in one firm of two or more successive stages in a vertically related production/ distribution process, with a later stage (for example, bread making) being combined with an earlier stage (for example, flour milling) Backward integration is undertaken to cut costs and secure supplies of inputs. In other words, backward integration is when a company buys another company that supplies the products or services needed for production. In short, Amazon used backward integration to expand its business and become both a book retailer and a book publisher. https://strategicmanagementinsight.com/topics/vertical-integration.html Key Difference – Forward vs Backward Integration All businesses are a part of a value system (a network where the company is connected with its suppliers and customers), where many organizations work in collaboration to deliver a product or service to the customers. a manufacturer buying a raw material or component supplier Examples of Vertical Integration A manufacturer assuming control of the supplies needed for their goods or services would be focused on backward integration. In the early days of the automobile business, Ford Motor Company created subsidiaries that provided key inputs to vehicles such as rubber, glass, and metal. One of the forms of business combinations is vertical integration in which a company reduces its supply chain by taking over a few companies in the same and performing those roles in the house or by bringing the company under its own control when such integration takes place of the supply chain prior to the products that are currently produced by the company, it is known as backward integration. The direction of vertical integration can either be upstream (backward) or downstream (forward). A Little More on Backward Integration. backward integration the joining together in one firm of two or more successive stages in a vertically related production/ distribution process, with a later stage (for example, bread making) being combined with an earlier stage (for example, flour milling) Backward integration is undertaken to cut costs and secure supplies of inputs. B. Backward vertical integration can produce a differentiation-based competitive advantage when a company, by performing activities internally rather than utilizing outside suppliers, ends up with a better-quality product/service offering, improves the caliber of its customer service, or in other ways enhances the performance of its final product. Acquiring the supplier will mean acquiring the workforce of the supplier as well. Both forward and backward integration are forms of vertical integration, i.e., where the company integrates with other companies who are in different steps on the same production path; for instance, with manufacturer… The supply chain involves various suppliers, distributors, middlemen. The Ins and Outs of Forward Integration. Backward integration is a form of vertical integration in which a company expands its role to fulfill tasks formerly completed by businesses up the supply chain. Vertical integration is a risky strategy—complex, expensive, and hard to reverse.Yet some companies jump into it without an adequate analysis of the risks. Backward integration is a type of vertical integration that includes the purchase of, or merger with, suppliers. Lack of supplier competition can reduce efficiency and thus result in higher costs. 33. Further, it will be an extra burden on the Company if it could not achieve the economies of scale that the supplier can achieve individually and produce goods at a lower cost. Backward integration is a sort of vertical integration that a company takes to expand the role that it has and to fulfill all the tasks which have been completed formerly by the other business up to the particular supply chain. They will control the production of raw materials until the production of the end product. 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