Question

Give two examples of forward vertical integration.

Answer 1

Forward Integration is a business strategy and a part of the vertical integration. In Forward Integration business activities are expanded to include control of the direct distribution or supply of a company's products. This is a strategy that is implemented by a company so that it can have greater control over the manufacturing, suppliers, distribution, etc so that it can increase the market power. The goal of forward integration is for a company to move forward in the supply chain, increasing its overall ownership of the industry.

One example of Forward integration is when a farmer sells his crops at a local grocery store rather than to a distribution center that controls grocery store placement. This helps to reduce the total cost.

Another example can be on Intel whereby it supplies processors to be placed in Dell's hardware. If Intel in future decides to own the entire supply chain it can go for a forward integration and acquire or merge along with Dell.

Example 3 can be of Amazon's purchase of whole foods as a part of its integration strategy. It has its own Transportation and distribution as well.

One can Opt for Forward integration in the below cases:

1. When the existing distributors and retailers are expensive.

2. The absense of quality distributors in the market.

3. The existing retailer and distributors have a higher profit margin.

4.