Backward Vertical Integration

• What is meant by backward vertical integration?

  When a company buys a company that supplies the products or services needed for production.
• What are the benefits of backward vertical integration?

  • Better control
  • Securing a supply of needed raw materials for a product
  • Reducing costs through economies of scale
  • Eliminating inefficiencies
  • Gaining in-house technology skills for competitive advantage and differentiation
• What are the drawbacks of backward vertical integration?

  • Although the company might realise cost savings, the cost of the additional debt might reduce any of the cost savings.
  • The added debt to the company‘s balance sheet might prevent them from getting approved for additional credit facilities from their bank in the future.