Definition Definition

Forward Integration: Understanding Forward Integration with Practical Example

What is Forward Integration?

Forward Integration is a strategic approach that entails a type of downhill vertical integration in which a firm owns and manages trade and commerce that are upstream of its industry's value chain, such as distribution channels or procurement of the company and its products. Vertical integration is carried out by a corporation as it moves up the supply chain. 

Understanding Forward Integration

Sometimes known as "cutting out the middleman," forward integration is an organizational technique used by a firm that aims to gain more bargaining power with suppliers, producers, or distributors in order to gain market power. 

A corporation must have new access control over other organizations that once were clients in order for a front integration to be effective. Backward integration, on the other hand, is when a firm tries to gain control of businesses that used to be its suppliers.

Forward integration has been both simpler and more common as the technology has grown in popularity. A producer, for example, can establish an online sales channel for its items using digital marketing. Traditionally, it had to rely on retail corporations and advertising agencies to make sales effectively. 

It is the process of a corporation moving forward in the supply in order to increase its overall management of the market. Raw materials, semi-finished goods, production, marketing and distribution, and after-sale service are now the five processes in the supply network in conventional industries. If a corporation wants to do forward integration, it must move up the value chain while keeping control of all its current operations—in other words, its original position in the chain.

Practical Example

Intel provides Hp with intermediate products, such as processors, which are installed in Hp's infrastructure. If Intel wants to move further in the supply network, it could merge with Hp or buy it out to control the manufacturing sector of the business. It may even attempt to take possession of a marketing firm that it earlier hired to advertise its end-product if it wished to participate in forward integration. Hp, on the other hand, can't try to buy Intel if it decides to move forward with integration. Only backward integration makes it possible to progress up the system.

In Sentences

  • The term forward integration is used to increase a company's or organization's market share through gaining control over the distribution channel. 


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