Forward integration

What is Forward Integration?

Forward integration is a corporate strategy in which a company expands its operations into areas that are closer to the end consumer. This strategy can involve a company taking control of its distributors or retailers, or even expanding its operations to include production of the final product. It is the opposite of backward integration, which is when a company takes control of its suppliers.

Advantages of Forward Integration

Forward integration provides several advantages for companies. These include:

  • Greater control over the end product – with forward integration, the company can create a product that better suits the needs and preferences of its target market.
  • Reduced costs – by controlling the distribution network, a company can reduce costs associated with marketing and distribution.
  • Increased profits – by controlling the entire supply chain, a company can increase profits by capturing more of the value of the product.
  • Greater market share – by controlling the distribution network, a company can gain greater market share, as it can more easily reach new customers.

Examples of Forward Integration

Forward integration is common in many industries. One of the most well-known examples is Apple, which owns and operates its own chain of retail stores. This allows Apple to control the entire buying experience, from the production of the product to the purchase and post-sales support. Another example is Amazon, which has moved into areas such as groceries, streaming services, and even healthcare. Amazon has used forward integration to gain greater control of the customer experience, and to capture more of the value of its products.

Conclusion

Forward integration is a strategy that can be used by companies to gain greater control of the end product and reduce costs associated with marketing and distribution. Examples of companies that have used forward integration successfully include Apple and Amazon.

Further Reading