What Does
Vertical Integration Mean?
Vertical Integration is an acquisition strategy that strategic buyers or priviate equity firms can employ to gain control of the overall supply chain. Backward integration is the acquisition of input supplier where as forward integration would be the acquisition of distribution chains.
Divestopedia Explains Vertical Integration
Vertical integration is a way that firms can acquire control over different stages of production or distribution in the same industry. For example, if a firm is a clothing company, vertical integration could involve the acquisition of:
- a mill that supplies the raw materials for the clothes;
- the manufacturing facilities producing the clothes; or
- retailers that sell the clothes.
These are just a few examples of vertical integration; however, depending on the business it could reach even farther backward or forward into the supply or distribution chain. By controlling more of the chain, firms can sometimes increase profits and market share because they can reduce the amount that is outsourced.