Vertical Forwards and Backwards integration

Question 1

What does vertical integration involve?

Answer 1

This means acquiring a business in the same industry but at a different stage of the supply firm

Question 2

What is a forward vertical integration?

Answer 2

An integration of a business that is closer to final consumers for example a manufacturer buying a retailer

Question 3

What is a backwards vertical integration?

Answer 3

Business integration that is closer to to the raw materials in the supply chain

Question 4

Give two benefits of vertical forwards integration?

Answer 4

Guaranteed outlet for products
The firm can exercise greater control over sales and prices of its products
The firms own retail stores serve as better source of customer feedback thus the better control can be gained over quality.

Question 5

Give two drawbacks of vertical forwards integration?

Answer 5

It is very difficult to manage an integrated firm because every business has its own structure, technology and problems.
Since its processes are interdependent, a slight interruption in one process may dislocate the entire production system.

Question 6

Give two benefits of vertical backwards integration?

Answer 6

Increased control
Guarantees sources of raw materials/ component goods
Reduces competitors access to important markets and scares resources.

Question 7

Give one drawback of vertical backwards integration?

Answer 7

The process leads to a lack of supplier competition which leads to low efficiency resulting in potentially higher costs.