What is backward integration?

Backward integration refers to a strategic move taken by a company to gain control over its supply chain by acquiring suppliers or entities involved in earlier stages of production. This approach allows a company to enhance its operational efficiency and ensure a stable supply of important inputs or raw materials. By bringing production processes inward, businesses can reduce dependence on external suppliers, mitigate supply chain risks, and potentially lower costs through economies of scale.

For example, if a beverage company decides to purchase a bottling plant, it is engaging in backward integration by taking control of a supply process that is crucial for its operations. This not only secures the supply of bottled beverages but also allows the company to exert more influence over quality and pricing.

In contrast, the other options pertain to different types of strategic actions. Activities closer to the end user pertain to forward integration, which involves moving toward the consumer side of the supply chain. Combining with competitors describes a form of horizontal integration, where companies merge or acquire other firms in the same industry to increase market share. Focusing on distribution channels involves logistical considerations and does not directly relate to modifying production processes or supply chains.