Difference Between Forward Integration and Backward Integration

Differences between Forward Integration and Backward Integration

Differences between Forward Integration and Backward Integration are explained in the below table,

Forward IntegrationBackward Integration
The company gains control of the business activities that are ahead in the value chainThe company gains control of the business activities that were behind in their value chain
The company acquire or merge with a distributorThe company acquire/merge with a supplier or manufacturer
Gain control over the distribution chainGain control over the supply chain
The main purpose is to obtain a greater market shareThe main purpose is to realize economies of scale
Example: FMCG goods production company acquires or starts a distribution company. Now the company can have control over its distribution process.Example: Clothing manufacturing company acquires or starts a fabric company. Now the company can have adequate raw materials for producing cloths.
Forward Integration vs Backward Integration

Differences between Forward Integration and Backward Integration are explained in the below points,

  1. Forward integration is where the company gains control of the business activities that are ahead in the value chain. Backward integration is where the company gains control of the business activities that were behind in their value chain.
  2. In forward integration, the company acquires or merges with a distributor. In backward integration, the company acquires/merges with a supplier or manufacturer.
  3. In forward integration, the company gains control over the distribution chain. In backward integration, the company gains control over the supply chain.
  4. The main purpose of forward integration is to obtain a greater market share. The main purpose of backward integration is to realize economies of scale.
  5. Example of Forward Integration: A FMCG goods production company acquires or starts a distribution company. Now the company can have entire control over their distribution process.
    Example of Backward Integration: A clothing manufacturing company acquires or starts a fabric company. Now the company can have enough raw materials for making dresses.

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