Forward and Backward Integration
Forward and Backward integration are deliberate activities companies perform with the aim of reducing risks and interdependencies from external business partners in the supply chain (Jones, and Charles 2009). Fundamentally, companies may control a bigger market size in the supply chain (David, 2010). Companies perform this by applying the strategies of backward and forward integration. Companies and organizations normally grow their activities in a manner that reduce cost and enhance efficiency. In business forward integration, “is a strategy in which companies develop their activities to control the direct distribution of their products” (Jones, and Charles 2009). This is necessary in a situation when companies have potential benefits from handling, shipping of their own products directly to customers, or the retail selling their own products in brand stores.
There might be various good reasons for companies to perform either backward or forward integration, but such strategic initiatives should always add specific value to the company, and should always be aligned with the overall strategy of the company and with customer needs and wants (Robert, Michael and Duane, 2010). Forward integration is economical where a company gets more revenues and profits when it sells its own products in its stores (Heilbroner and Milberg, 2008). This particular situation would compel company to open more stores and continue to directly sell to the customers. Secondly, it is appropriate for a company to adopt forward integration where a company feels direct service to the customer generates more economies of scale. In this regard, the company may benefit from strong marketing campaign done by the customers as a result of direct service they receive. In conclusion, forward intergradations will be an inevitable and appropriate strategy when the company has got a greater competitive advantage over the rest players by handling customers directly.
|Business Negotiations||Saudi Aramco|