FORWARD INTEGRATION BACKWARD INTEGRATION
DEFINITION A business approach known as
"forward integration" entails a
corporation expanding its activities
downstream in the direction of the
end customers. It entails buying or
building companies that are
located more directly at the end of
the supply chain, including
distributors, retailers, or even
direct sales channels. Forward
integration is a strategy used by
businesses to improve customer
reach, increase market share, and
have more control over how their
goods or services are distributed.
ADVANTAGES (1) Increased distribution
control: Forward integration
enables a business to directly
manage the delivery of its
goods or services.
(2) Quality control and cost
(2) Improved consumer reach: A
corporation can increase its
customer base and access
new markets by integrating
forward.
(3) Cost savings and price
control: By eliminating supply
chain middlemen, forward
integration lowers the
expenses of distribution,
marketing, and sales fees.
DISADVANTAGES (1) Increased investment and
complexity: Forward
integration often requires
significant investment in
acquiring or establishing
distribution channels or retail
outlets.
(2) Market risks and
competition: Expanding into
new markets through forward
integration can expose the
On the other side, backward
integration is a business strategy
where a company grows its activities
upstream towards its suppliers or
sources of raw materials. It entails
buying or starting up companies that
were formerly a part of the
company's supply chain. Backward
integration is a strategy used by
businesses to increase supply chain
control, guarantee a stable supply of
raw materials, boost cost
effectiveness, and enhance quality
control.
(1) Supply chain control and
stability: Backward integration
allows a company to have more
control over its supply chain.
efficiency: By integrating
backward, a company can have
direct control over the quality
and specifications of raw
materials or components.
(1) Increased capital and
operational requirements:
Backward integration may
require significant capital
investment to acquire or
establish upstream operations.
(2) Limited focus and expertise:
Moving upstream in the supply
chain requires the company to
develop new capabilities and
expertise in areas outside its
 company to market risks and
increased competition.
EXAMPLE CASE A manufacturer of consumer
goods may decide to forward
integrate by acquiring a retail
chain. This allows them to have
direct access to the end
customers, eliminate
intermediaries, and gain better
control over pricing, marketing,
and customer experience.
core competencies.
An automobile manufacturer may
choose to backward integrate by
acquiring a steel production
company. This allows them to have
direct control over the supply of
steel, reduce dependence on
external suppliers, mitigate supply
chain risks, and potentially reduce
costs.