BACKWARD INTEGRATION Meaning and
Definition
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Backward integration refers to the strategic business practice in which a company expands its operations or control over the supply chain by acquiring or merging with the suppliers or distributors of its products or services. It is a form of vertical integration where a company moves upstream in its supply chain.
In backward integration, a company seeks to gain more control and influence over its inputs or raw materials, allowing it to secure a reliable and efficient supply chain. By bringing the suppliers or distributors under its ownership or control, the company can reduce dependency on external entities and potentially eliminate supply chain uncertainties, such as delays or fluctuating prices.
This strategic move allows the company to optimize its operations, reduce costs, and improve its competitiveness. By integrating backward, a company gains greater coordination and control of its production processes, ensuring timely delivery of materials, better quality control, and potentially lower costs.
Backward integration can also provide a company with a competitive advantage by enabling it to differentiate its products or services, have more flexibility in the design or customization of inputs, or secure scarce or unique resources.
However, backward integration comes with potential risks and challenges, such as increased operating complexity, difficulty in managing relationships with suppliers turned subsidiaries, and the need for significant investments in acquisition or merger activities. Moreover, it may limit the company's access to external market innovations and diverse supplier options.
Etymology of BACKWARD INTEGRATION
The term "backward integration" combines two words: "backward" and "integration".
1. "Backward" is derived from the Old English word "bæcweard", which means "toward the back" or "in the opposite direction". It is composed of the word "bæc", meaning "back", and "weard", meaning "toward". Over time, it evolved to its current form, describing movement or concepts that involve going in the opposite or reverse direction. In the context of business and economics, "backward" typically refers to moving closer to the source or production of goods or services.
2. "Integration" comes from the Latin word "integrare", which means "to make whole" or "to renew". It is derived from "integer", meaning "whole" or "complete".
