BROWSE

Backward Integration

What is 'Backward Integration'

Backward integration is a form of vertical integration that involves the purchase of, or merger with, suppliers up the supply chain. Companies pursue backward integration when it is expected to result in improved efficiency and cost savings. For example, this type of integration might cut transportation costs, improve profit margins and make the firm more competitive.

Explaining 'Backward Integration'

Vertical integration is the integration of two or more companies at different places on the supply chain. A supply chain is the summation of individuals, organizations, resources, activities and technologies involved in the manufacturing and sale of a product. The supply chain starts with the delivery of raw materials from a supplier to a manufacturer, and ends with the sale of a final product to an end-consumer. Backward integration occurs when a company initiates a vertical integration by moving backward in its industry's chain.

Difference Between Backward Integration and Forward Integration

By way of contrast, forward integration is a type of vertical integration that involves the purchase or control of distributors. An example of forward integration is if the bakery sold its goods directly to consumers at local farmers markets, or if it owned a chain of retail stores through which it could sell its goods. If the bakery did not own a wheat farm, a wheat processor or a retail outlet, it would not be vertically integrated at all.

Potential Issues With Backward Integration

Vertical integration is not inherently good. For many firms, it is more efficient and cost effective to rely on independent distributors and suppliers. For example, backward integration would be undesirable if a supplier could achieve greater economies of scale and provide inputs at a lower cost as an independent business, rather than if the manufacturer were also the supplier.

A Real World Example of Backward Integration

Many large companies and conglomerates conduct backward integration. Amazon.com, for example, became vertically integrated backward when it expanded its business to become both a book retailer and a book publisher. Previous to acting as a publisher, Amazon.com was the first online retailer of books, and it made purchases from traditional publishers for a fee. Once it decided to print and market its own books as a publisher, it reduced the costs of producing or procuring the books.


Further Reading


Power plays: Regulation, diversification, and backward integration in the electric utility industry
onlinelibrary.wiley.com [PDF]
… Predictions of the extent to which a firm diversifies and integrates upstream based on transaction-cost … two ubiquitous strategic issues-the extent to which a firm should diversify and integrate upstream. The analysis models diversi- fication and backward integration in the closely …

Regional economic integration and the backward integration of ECOWAS sub-region into global value chainsRegional economic integration and the backward integration of ECOWAS sub-region into global value chains
www.inderscienceonline.com [PDF]
… Predictions of the extent to which a firm diversifies and integrates upstream based on transaction-cost … two ubiquitous strategic issues-the extent to which a firm should diversify and integrate upstream. The analysis models diversi- fication and backward integration in the closely …

Do agglomeration and technology affect vertical integration? Evidence from Italian business groupsDo agglomeration and technology affect vertical integration? Evidence from Italian business groups
www.tandfonline.com [PDF]
… Predictions of the extent to which a firm diversifies and integrates upstream based on transaction-cost … two ubiquitous strategic issues-the extent to which a firm should diversify and integrate upstream. The analysis models diversi- fication and backward integration in the closely …

Financial market integration and economic growth in the EUFinancial market integration and economic growth in the EU
academic.oup.com [PDF]
… Predictions of the extent to which a firm diversifies and integrates upstream based on transaction-cost … two ubiquitous strategic issues-the extent to which a firm should diversify and integrate upstream. The analysis models diversi- fication and backward integration in the closely …

When does it make sense for US retailers to opt for backward integration for global sourcing?When does it make sense for US retailers to opt for backward integration for global sourcing?
www.emerald.com [PDF]
… Predictions of the extent to which a firm diversifies and integrates upstream based on transaction-cost … two ubiquitous strategic issues-the extent to which a firm should diversify and integrate upstream. The analysis models diversi- fication and backward integration in the closely …

Managed care, vertical integration strategies and hospital performanceManaged care, vertical integration strategies and hospital performance
link.springer.com [PDF]
… Predictions of the extent to which a firm diversifies and integrates upstream based on transaction-cost … two ubiquitous strategic issues-the extent to which a firm should diversify and integrate upstream. The analysis models diversi- fication and backward integration in the closely …

A Research of Motivation and Action Mode of Backward Integration Strategy: On Listed Chemical Companies Case <span style=[J]' src='/thumbnails/?img=http%3A%2F%2Fen.cnki.com.cn%2FArticle_en%2FCJFDTotal-JJWT201308022.htm' />A Research of Motivation and Action Mode of Backward Integration Strategy: On Listed Chemical Companies Case [J]
en.cnki.com.cn [[J]' href='https:/api.miniature.io/pdf?url=en.cnki.com.cn%2FArticle_en%2FCJFDTotal-JJWT201308022.htm'>PDF]
… Predictions of the extent to which a firm diversifies and integrates upstream based on transaction-cost … two ubiquitous strategic issues-the extent to which a firm should diversify and integrate upstream. The analysis models diversi- fication and backward integration in the closely …

The choice of organizational form: vertical financial ownership versus other methods of vertical integrationThe choice of organizational form: vertical financial ownership versus other methods of vertical integration
onlinelibrary.wiley.com [PDF]
… Predictions of the extent to which a firm diversifies and integrates upstream based on transaction-cost … two ubiquitous strategic issues-the extent to which a firm should diversify and integrate upstream. The analysis models diversi- fication and backward integration in the closely …

Analysis of supply chain backward integration, outsourcing and coordination strategiesAnalysis of supply chain backward integration, outsourcing and coordination strategies
en.cnki.com.cn [PDF]
… Predictions of the extent to which a firm diversifies and integrates upstream based on transaction-cost … two ubiquitous strategic issues-the extent to which a firm should diversify and integrate upstream. The analysis models diversi- fication and backward integration in the closely …


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