Backward Integration

What is Backward Integration?

Backward integration is a business strategy in which a company expands its operations to include control or ownership of its suppliers. This can be done through a variety of means, such as acquiring the supplier outright, entering into a joint venture with the supplier, or establishing a long-term contract with the supplier.

The main goal of backward integration is to improve the efficiency and stability of the supply chain by reducing reliance on external suppliers and gaining more control over the production process. It can also allow a company to capture a larger share of the value created by the product or service, as it can control the costs of raw materials and other inputs.

However, backward integration also carries some risks, including the potential for increased complexity and the need to invest in new capabilities and infrastructure. It is important for companies to carefully consider the costs and benefits of backward integration before implementing this strategy.