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Forward Vs Backward Integration

The document discusses forward and backward integration strategies. Forward integration involves acquiring downstream organizations in the supply chain, while backward integration involves acquiring upstream suppliers. The document outlines advantages like increased market share and competitive advantages as well as disadvantages like bureaucratic inefficiencies and high costs of both strategies.

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9 views

Forward Vs Backward Integration

The document discusses forward and backward integration strategies. Forward integration involves acquiring downstream organizations in the supply chain, while backward integration involves acquiring upstream suppliers. The document outlines advantages like increased market share and competitive advantages as well as disadvantages like bureaucratic inefficiencies and high costs of both strategies.

Uploaded by

4skyj4sm1n3
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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FORWARD

VS
BACKWARD
INTEGRATION

www.benchmarksixsigma.com
WHAT IS FORWARD
INTEGRATION?

Forward Integration is a business


growth strategy where an
organization acquires
organizations involved in activities
that are downstream of its
operations. In other words, the
organization buys its intermediary
customers (not the retail or the
end customer) and expands down
the supply chain.

www.benchmarksixsigma.com
ADVANTAGES OF
FORWARD INTEGRATION:

Increases Market Share:


Since there is a
transportation cost and other
transactional cost reduction,
company can sell the product
at a lower price, achieving
more market shares.

www.benchmarksixsigma.com
ADVANTAGES OF
FORWARD INTEGRATION:

Control over distribution:


since we can eliminate the 3rd
party intervention like
wholesale retailers or brokers,
we will have better control
over the dispatches.

Competitive advantage:
Lower costs and controlled
distribution gives companies a
competitive advantage over
the other companies.

www.benchmarksixsigma.com
DISADVANTAGES OF
FORWARD INTEGRATION:

Bureaucratic Inefficiency:
Various merger and
acquisition deals create
inefficiencies due to the entry
of new apparatus of the new
entity.

www.benchmarksixsigma.com
DISADVANTAGES OF
FORWARD INTEGRATION:

Realization of coordination
between the companies:
Improper strategy
implementation can be the
reason for not realizing the
coordination potential.

High Costs:
Mergers/acquisitions may
need substantial high funds,
and benefits from the strategy
implementation may be less
than the cost spent.

www.benchmarksixsigma.com
WHAT IS
BACKWARD INTEGRATION?

Backward Integration is a
business growth strategy where
an organization acquires
organizations involved in
activities that are upstream of its
operations. In other words, the
organization buys its suppliers
and expands the supply chain.

www.benchmarksixsigma.com
ADVANTAGES OF
BACKWARD INTEGRATION:

Better Control: Since the


company controls raw material
supply reasonably, on-time
production and delivery are
possible. Also, the Quality of
the raw material can be
maintained based on the
product quality required in the
final product.

www.benchmarksixsigma.com
ADVANTAGES OF
BACKWARD INTEGRATION:

Cost Control: By In-house


production of raw materials, we
can avoid the profits eaten up
by the intermediaries and the
transportation costs.
Competitive advantage: For
example, in the technology
industry, companies can go for
their own new low-cost, high
beneficial technology by
making it proprietary,
trademarks or by patenting,
allowing the competitors to
search for alternative methods.

www.benchmarksixsigma.com
DISADVANTAGES OF
BACKWARD INTEGRATION:

Inefficiencies: Since the raw


materials are produced In-
House, the company may limit
competition resulting in the
lack of Innovation leading to
poor quality of final products,
increasing the cost of
customer complaint handling.
Investment: Since huge initial
investment is required,
company may be forced to
utilize all it's reserves and even
take more debts resulting in
losses in case of failure of
business.

www.benchmarksixsigma.com
INQUIRE NOW!

Learn business value chain


consolidation approaches in our
Business Value Analyst Program.

+91 98113 70943

www.benchmarksixsigma.com

https://tinyurl.com/BSSinquire

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