What are the most famous instances of backward integration? (2024)

FAQs

What are the most famous instances of backward integration? ›

Some of the most well-known examples of backward integration include Apple Inc. and Carnegie Steel.

An example of backward integration might be a bakery that purchases a wheat processor or a wheat farm. In this scenario, a retail supplier is purchasing one of its manufacturers, therefore cutting out the intermediary, and hindering competition.

Backward vertical integration involves acquiring a business operating earlier in the supply chain – e.g. a retailer buys a wholesaler, a brewer buys a hop farm. Another good example was Apple Inc. buying a chip supplier Dialog in 2018.

Backward Integration Example: Apple M1 Chips (AAPL)

In summary, Apple decided to build its own proprietary chips, M1, in-house rather than relying on Intel.

In backward integration, businesses expand, acquire, or merge with a firm “below” them in the supply chain. For example, IKEA – a DIY furniture company – needs wood to manufacture furniture. IKEA decided to acquire a wood supplier, which is an example of backward or “downstream” integration.

Backward integration takes place when businesses at the end of the supply chain take on activities that are "upstream" of its products or services. Netflix, a video streaming company that distributes and creates content, is an example of a company with backward integration.

Example of Forward Integration

For example, the company Intel supplies Dell with intermediate goods—its processors—that are placed within Dell's hardware. If Intel wanted to move forward in the supply chain, it could conduct a merger or acquisition of Dell in order to own the manufacturing portion of the industry.

Starbucks uses both forward and backward vertical integration to maximize profits.

The Apple Model

Apple is also one of the most significant vertical integration examples because the company has controlled the manufacturing and distribution of its products from the time it was founded. Apple not only sells computers, iPhones and iPads, but it also designs the software that powers these products.

Effective Vertical Integration

This means that the fast-food chain processes the meat themselves, grows its potatoes and transports its own materials. As a result of McDonald's taking control of the component and distribution element of the supply chain, it can achieve an overall lower cost for its restaurants.

Is Ikea forward or backward integration? ›

The best example of a backward vertical integrated company is IKEA who acquired the forest company.

Backward Integration. A form of vertical integration where the company integrating channel operations moves upstream, toward manufacturing. Brokers (Agents) Representatives of one or more manufacturers who sell products on their behalf to consumers, wholesalers, and distributors but do not take title to them.

In economics, vertical integration is the term used to describe a business strategy in which a company takes ownership of two or more key stages of its supply chain. A vertically integrated automaker, for example, might produce automobile components and vehicles and also sell directly to customers.

Backward integration is a type of vertical integration and M&A corporate finance strategy in which businesses acquire or merge with raw materials inventory or parts suppliers in their supply chain. The companies then own and produce these earlier-stage inputs vs. buy them from outside companies in the supply chain.

Suppose there is a Car Company, XYZ, which gets a lot of raw materials like iron and steel for making cars, rubber for seats, pistons, engines, etc., from various suppliers. If this car Company merges/ acquires the supplier of iron and steel, it will be called backward integration.

Amazon is an excellent example of a business that has embraced a vertical integration strategy, and it's a crucial reason why they've become a multibillion-dollar company. Amazon wasn't always like this. When Jeff Bezos started the company, he was working out of his garage.

Walmart is the largest retailer in the United States. It is also the largest company in the world. The company has been able to vertically integrate its supply chain, and it has been able to expand its operations. This allows Walmart to offer consumers a wide variety of products at a low cost.

The vertically integrated bottlers (Coca-Cola Enterprises, Pepsi Bottling Group and Pepsi Americas) bottled Dr Pepper's products both before and after the vertical integration.

Samsung relies on vertical integration as a chief competitive advantage.

Nike reducing dependence on wholesalers, distributors & retailers, and prioritizing direct-to-consumer sales is an example of Forward Integration.

Is Amazon a forward integration? ›

Another forward integration example includes Amazon forward integration. E-commerce giant Amazon acquired grocery brand Whole Foods to venture into the brick-and-mortar business so that customers could buy the products from the outlets. This is a perfect example of forward integration strategy.

Apple is one of the most successful examples of both Forward and Backward Integration with sustained success. Apple integrates backward by manufacturing the chips it uses in the Apple phones. By doing so, Apple can control chip quality and manufacturing costs.

Some of the most well-known examples of backward integration include Apple Inc. and Carnegie Steel. Apple Inc. has employed a vertical integration strategy for decades.

Accessories. Starbucks has successfully integrated backwards through its company owned stores that sell food, drink, coffee beans, appliances and accessories.

When a concentrate producer like Pepsi Cola decides to produce its own cans and enters the canning business, we call this development backward integration. In other words it is the extension of commercial activities to sectors further back from the end-consumer in the overall market chain.

Today, Netflix uses its distribution model to promote its original content alongside programming licensed from studios. 2 Instead of simply relying on the content of others, Netflix performed vertical integration to become more engaged in the entertainment development process earlier.

Vertical integration – Nike's operations are vertically integrated with a presence in every segment of the value chain from manufacturing down to sales. - Vertical integration that exists in the supply chain is between the suppliers, manufacturers, distributors and retailers.

Forward Vertical Integration. A forward vertical integration strategy involves a firm moving further down the value chain to enter a buyer's business. Disney has pursued forward vertical integration by operating more than three hundred retail stores that sell merchandise based on Disney's characters and movies.

The Bakery is part of the Company's vertical integration strategy, which enables us to achieve efficiencies throughout our supply chain.

Burger King's hot dogs, it turns out, are vertically integrated. And that makes them a no-brainer for 3G Capital, as well as Warren Buffett's Berkshire Hathaway, which also backs Kraft Heinz.

Does Johnson and Johnson use vertical integration? ›

Our vertically integrated brand portfolio means that every key component that goes into our products comes from one of our own facilities, giving us full control over how they're designed and built. If we don't make the component, we thoroughly audit who does, ensuring that every part works together flawlessly.

H&M and Zara are two excellent examples of vertically integrated fashion brands, which have excelled in good years, and survived the bad ones with an agile and vertical supply chain.

Balanced Integration

A fitting example highlighting the advantages of vertical integration is Hershey. The chocolate manufacturing house depends upon bean suppliers for its raw material while relying on distributors such as Walmart and Target to sell its products.

Tesla mentioned an "in-sourcing" strategy in order to achieve rapid growth. CEO Elon Musk elaborated on the investor call, "Tesla is absurdly vertically integrated compared to other auto companies or basically almost any company.

Backward integration refers to a form of vertical integration in which a company expands its role to accomplish tasks that were previously completed by companies up the supply chain.

Backward integration has several potential challenges and risks. Companies that are unable to effectively manage their supply chain after acquiring their suppliers may lose profits and produce lower-quality products.

Backward integration occurs when a company decides to buy another business that makes an input product for the acquiring company's product.

In that context, vertical integration means a company controls everything from manufacturing to distribution. Apple, for example, designs and manufactures its own products, then sells them online and at physical Apple Stores.

Sourcing and Manufacturing − Zara's vertically integrated business model allows the company to control all aspects of production, from sourcing raw materials to manufacturing final products. This enables the company to have a quick response time to new trends and customer demands.

Facebook has vertically integrated almost all the functions of a communications platform aspect of service delivery into itself. For example you start a message on Facebook and it's delivered on Facebook. The message never leaves the network.

Why is backward integration bad? ›

3 Disadvantages of Backward Integration

Raw material suppliers focus exclusively on producing those materials as goods, whereas a company that acquires such a supplier might not have the same expertise. This can bloat the business and lead to both inefficiency and the reduced quality of raw materials themselves.

In practice, companies can opt for forward and backward integration. read more to gain a competitive advantage. It helps a company extend its reach in the market, helping it get control of the demand side; on the contrary, backward integration helps the company get control of the supply side.

Backward Integration:

It is form of vertical integration where firms integrate backwards to produce their inputs or raw materials. Rather than buying the inputs from outside, firms manufacture their inputs. If sugar mills own sugarcane farms, they are said to have diversified through backward integration.

Examples of backward integration

The company produces steel and power through backward integration from its own captive coal and iron-ore mines.

Example: Merger between Zee Entertainment Enterprises Limited Ltd. (ZEEL), a broadcaster, and Dish TV India Limited, a distribution platform operator is an example of vertical merger as both the entities are at different stages of the production/supply chain.

FedEx. A major international distribution company, FedEx is forward vertical integration royalty.

Indeed, there is a key distinction to make between Meta and other tech giants like Google or Apple. Where Google and Apple have built vertical integration, thanks to the control over a whole ecosystem.

eBay's purchase of PayPal and Apple's creation of Apple Stores are two recent examples of forward vertical integration.

The answer here is option "B", a car company opening its own dealerships to sell its products directly to customers. Option B is a perfect example of forward integration, which is a type of vertical integration.

Backward integration is a type of vertical integration and M&A corporate finance strategy in which businesses acquire or merge with raw materials inventory or parts suppliers in their supply chain. The companies then own and produce these earlier-stage inputs vs. buy them from outside companies in the supply chain.

What is a real life example of integration? ›

Integrals are utilised in a variety of sectors in real life, including engineering, where engineers use integrals to determine the geometry of a building. It's used to describe the centre of gravity, among other things, in physics. In the field of graphical representation, three-dimensional models are displayed.

The best example of complete economic integration is with the European Union (EU). The EU is made up of separate member countries, including: Germany. France.

Examples of market integration are the establishment of wholesaling facilities by food retailers and the setting up of another plant by a milk processor. In each case, there is a concentration of decision making in the hands of a single management.

This form of vertical integration can be advantageous to the primary business if control of the business that is downstream the supply chain provides a guaranteed supply of inputs. Some of the most well-known examples of backward integration include Apple Inc. and Carnegie Steel.

In this case, Apple uses both the backwards and forwards integration strategies. Apple has its own software, hardware and retail stores. Also, have their own services company. Apple is the only company who uses all techniques and we can say that it is vertically integrated into everything.

The main purpose of forward integration is to achieve larger market share. The main purpose of backward integration is to achieve economies of scale.

Forward integration is the gaining of ownership or increased control over distributors or retailers. An example of forward integration is Gateway Computer Company opening its own chain of retail computer stores. Backward integration is the seeking of ownership or increased control of a firm's suppliers.

I heard a noise behind me and glanced backward. He pushed the throttle backward. She took a small step backward.

Implementing backward integration can result in inefficiencies. By acquiring the supplier of raw materials required in the production process, the company will limit competition, resulting in sluggishness and lack of innovation. The company will be less motivated to spend money on research and development.

Another backward integration example could be an automobile organization owning a tire organization, a glass organization and a metal organization. This strategy attempts to move organizations backward in the supply chain so that they have control over the raw materials.