Backward Vertical Integration Flashcards, test questions and answers

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What is Backward Vertical Integration?

Backward vertical integration is a strategic move in which a company expands its operations by taking control of the supply chain and processing of materials that it needs to produce its products. It involves buying businesses or acquiring facilities that are involved earlier on in the production process than one’s current business activities, thus moving upstream in terms of the production process. This enables greater control over raw materials, costs, and quality for producing goods and services. Backward vertical integration has been used by companies for many years as a way to reduce costs, increase efficiency and gain competitive advantage. For example, auto manufacturers often vertically integrate their own parts suppliers so they can have more direct control over production costs and ensure consistent quality from the parts being used in vehicles. By controlling their own supply chain from beginning to end, automakers can also speed up delivery times and provide better customer service. Another benefit of backward vertical integration is diversification; when companies purchase businesses further up the value chain they are able to expand into new markets or offer additional services or products that complement their existing ones. This allows them to spread out risk while creating new sources of income streams that can help sustain profits during tough economic times. Additionally, backward vertical integration provides firms with access to valuable resources such as technology or talent pools which may otherwise be difficult to come by through external providers. Though there are numerous advantages associated with backward vertical integration, it is important for firms considering this strategy to consider potential risks as well. Backward vertical integration requires significant capital investments which could cause financial strain if not properly managed – especially if sales do not meet expectations due to unforeseen changes within an industry or market conditions outside of one’s control . Furthermore , back ward vortical integrations also increases complexity within an organization since it require s coordination between multiple departments , product lines ,and supply chains . Lastly , th ere is always a chance that the acquisition may fail due t o cultural misalignment between newly acquired units amd those already existing within your firm .