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Posted by Satyendra on Nov 15, in Management 0 comments Forward and backward integration and Backward Integrations Forward and backward integrations are two integration strategies which are adopted by organizations to gain competitive advantages in the market and to gain control over the value chain of the industry under which they are operating.
Backward and Forward Integration: Benefits for Businesses
These strategies are one of the major considerations when developing future plans for an organization. Together these two strategies are known as vertical forward and backward integration. The process of backward and forward integrations is shown in Fig 1 Fig 1 Process of backward and forward integration Vertical integration is the degree to which the organization owns its upstream suppliers and its downstream buyers for further product processing.
Contrary to the horizontal integration, which is a forward and backward integration of many organizations that handle the same part of the production process, vertical integration is typified by one organization engaged in different parts of production e.
However, prior to initiating a forward integration, companies should be aware of the costs and scope associated with this type of strategy.
- Backward and Forward Integration
- Forward Integration
- Backward Integration
- Forward and Backward Integrations
Companies should only forward integrate if there are cost benefits and if the integration won't dilute its current core competences. Backward integration is a very important business strategy.
By executing this strategy, a company can help its bottom line. Costs can be controlled significantly from the production through to the distribution process.
Without brick-and-mortar stores, Amazon saves on operating costs, and makes forward and backward integration more money by being a publisher of books in addition to selling them. Amazon, like Apple, is a great example of the success of using the concept it represents.
It is my hope by this point to have effectively introduced, explained, and provided examples of forward and backward integration.
It's a high-risk strategy — there are a lot of things that can go wrong — but when it works, it can give you a substantial advantage over your competitors.
Vertical Goes Both Ways There are two ways to integrate vertically.
If you extend your business in the direction of your ultimate customers, it's referred to as forward or downstream vertical integration. If you extend back through your own supply chain, it's called backward or upstream integration.
Integrating in each direction has advantages and eventually, you might choose to become completely integrated, from producing your own raw forward and backward integration to selling directly to your end users.