Backward Integration

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Definition of 'Backward Integration'

Backward integration is a strategy in which a company acquires or merges with its suppliers. This can help the company to reduce its costs, improve its efficiency, and gain a competitive advantage.

There are several benefits to backward integration. First, it can help a company to reduce its costs by eliminating the need to purchase from third-party suppliers. This can be especially beneficial for companies that rely on a small number of suppliers or that purchase a large volume of goods. Second, backward integration can help a company to improve its efficiency by giving it more control over its supply chain. This can lead to shorter lead times, lower inventory levels, and improved quality control. Third, backward integration can help a company to gain a competitive advantage by giving it access to proprietary technologies or processes. This can be especially important for companies in competitive industries.

However, there are also some risks associated with backward integration. First, it can be a costly and time-consuming process. Second, it can create challenges in terms of managing the acquired or merged company. Third, it can lead to a loss of flexibility if the acquired or merged company is not able to meet the needs of the parent company.

Overall, backward integration can be a valuable strategy for companies that are looking to reduce their costs, improve their efficiency, and gain a competitive advantage. However, it is important to carefully consider the risks involved before pursuing this strategy.

Here are some examples of companies that have used backward integration:

* In 2015, General Motors acquired the automaker Opel from PSA Peugeot Citro├źn. This acquisition gave General Motors access to Opel's manufacturing facilities in Europe, which helped the company to reduce its costs and improve its efficiency.
* In 2016, Amazon acquired the grocery chain Whole Foods Market. This acquisition gave Amazon access to Whole Foods' distribution network and supply chain, which helped the company to expand its grocery business.
* In 2017, Apple acquired the chipmaker Intel's smartphone modem business. This acquisition gave Apple access to Intel's modem technology, which helped the company to improve the performance of its iPhones.

These are just a few examples of companies that have used backward integration to achieve their business goals. Backward integration can be a valuable strategy for companies that are looking to improve their competitive position.

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