Two Types of Vertical Integration

Vertical Integration pic
Vertical Integration
Image: investopedia.com

Alexander Christodoulakis is the CEO of PBS SA Capital Group and serves as President of Portland Marine Group.

Using a vertically integrated management system within his corporate portfolio has helped to provide Alexander’s companies under management with a degree of stability and sustainability in a volatile global market.

A company that decides to vertically integrate can do so by using either a forward or backward methodology. Below is a brief description and an example of each.

1. Forward integration – This type of integration occurs when a manufacturer sells directly to the retailer, rather than going through a wholesaler. The advantage of forward integration lies in the elimination of the middleman, which reduces cost in the distribution process. Apple, Inc. adopted a forward integration business method when it began opening retail stores through which to sell its products directly to consumers.

2. Backward integration – Backward integration is a business strategy involving the purchase of one or more of the suppliers in a manufacturer’s supply chain, thereby reducing cost and streamlining business. An example of this strategy is Amazon: originally booksellers, the company integrated backwards when it went into publishing.

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