Backward integration is a process in which a company acquires or merges with other businesses that supply raw materials needed in the production of its finished product. Businesses pursue backward integration with the expectation that the process will result in cost savings, increased revenues, and improved efficiency in the production process.
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- How Does Backward Integration Work? Companies rarely start out as fully integrated, instead typically focusing on one part of the supply chain.
- 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.
- backward integration is a form of vertical integration, enables businesses to control their suppliers, and thus improve the supply chain efficiency.
- In a backward integration business strategy , the publishing house would subsume one or all of these businesses to cut costs and control its own manufacturing.
- What is Backward Integration?# The Company does so to maintain a competitive advantage and increase entry barriers.
- The main purpose of backward integration is to achieve economies of scale. Summary – Forward vs Backward Integration.
- Backward integration guarantees source of raw material or inputs or deny competitors sources of inputs, increased profit because the inputs are cheaper.
- This article will discuss the importance of backward integration, explain how it works, and provide successful case studies.
- Backward Integration is a strategy where a company gains more control over the functions in the earlier stages of the value chain, i.e. moving “upstream”.
- They complete due diligence and an M&A transaction when the benefits of backward integration are justified and financially feasible.