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Vertical integration

Vertical integration is a business strategy where a company expands its operations by acquiring or controlling other businesses that are either upstream or downstream in the supply chain. This means that a company integrates different stages of production or distribution within the same industry under its ownership. The goal is to gain more control over the entire value chain, from raw materials to the final product or service delivery.

With backward vertical integration, a company acquires or takes control of suppliers or businesses that are positioned earlier in the production or supply chain. By doing so, the company aims to ensure a stable and reliable source of raw materials, reduce dependency on external suppliers, and potentially achieve cost savings through economies of scale. For example, a car manufacturer may backward integrate by acquiring a steel manufacturing company to secure a steady supply of steel for their car production.

With forward vertical integration, a company acquires or takes control of distribution or retail channels that come later in the supply chain. This allows the company to have more direct access to customers and better control over the marketing and sales of its products or services.

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