Backward Integration Strategy

The backward integration strategy is a business movement consisting of increasing control over suppliers, in fact in many cases, it involves the direct acquisition of control over them, is a strategy currently widely used and has very common causes of use. marked. We are talking about cases in which it is essential to monitor suppliers more closely to guarantee the activity of the company.

Some of the most classic cases for which it is necessary to control suppliers are:

• In those cases in which there are not too many suppliers and, on the contrary, if there are many competitors.
• When the company is growing faster than expected
• When the suppliers available to the company are excessively expensive and do not meet the minimum distribution needs.
• When prices have high profit margins.
• In cases where the organization wants to acquire a resource at a speed that the provider cannot provide.

These are just some of the cases in which you can use the Backward Integration strategy. It should be added to this assessment that controlling suppliers is a strategy that is even carried out by companies who do not have a specific need to do so, but see it as an interesting possibility to open another avenue of deal.

There are examples of large companies that have opted for Backward Integration due to the above causes. Some of them, for example, are multinationals in the production of vehicles, a sector where it is usually required to have a large number of suppliers (it is estimated that a company in this sector has around 10,000 suppliers), the trend in the automotive sector is the reduction of suppliers to half of that figure, achieving a simplification in the management as well as other benefits in the exploitation.

In the IT sector, backward Integration is also tending for similar reasons, the high competitiveness of the sector, the constant appearance of new companies that simplify production as well as high quality standards have led large companies to opt for control of their dealers.

For all these reasons, the Backward Integration strategy not only responds to assessed causes, but is also becoming a trend in current business management.