Vertical integration
Vertical integration occurs when a firm expands by integrating with other firms at different stages of the supply chain. Backward vertical integration involves acquiring suppliers, while forward vertical integration involves acquiring distributors or retailers. This extends the firm's control across multiple stages of production and distribution.
Real World
Netflix moved from licensing others' content (forward-facing distribution) to producing its own shows like Stranger Things — a form of backward vertical integration securing control over its key input.
Exam Focus
Specify whether integration is forward or backward and explain the direction relative to the firm's original position in the supply chain.
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