What is an example of backward integration?


Quick Answer

The most common form of backward integration is when a resale business acquires a supplier that it once bought from. A supermarket might acquire a manufacturing firm that supplies canned goods that it sells to customers, for instance. The goals are to reduce costs and assume greater control over activities within the distribution process.

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Full Answer

Another example of backward integration is a car repair shop buying the parts store from which it previously acquired parts. After the acquisition, the service business can simply operate the parts store as a supply center or continue to sell parts to other service companies and dealerships as well.

A computer hardware developer acquiring a firm that provides components for its products is also backward integration. In this case, the company gets direct access to the integral parts of its products, has greater control over the integration process and can potentially minimize time to market for its finished goods.

An auto manufacturer acquiring a steel production business is backward integration as well. In this case, the auto maker has lower cost and efficient access to crucial materials that it uses in the business. Another advantage of backward integration is the ability to take control of a firm that supplies director competitors. However, this strategy leads to monopolistic concerns.

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