Definition of Backward Integration
Business relies on other businesses for supplies to manufacture product and services. Backward integration is a type of vertical integration where a business buys or merges with the supplier business to start producing their own supplies for manufacturing or services. Companies can also develop their own supply chain network by establishing a subsidiary company to manufacture raw materials. Complete vertical integration happens when a company starts owning the whole manufacturing process from producing the raw material to finishing the goods.
Backward integration brings work efficiency and cost-saving to the organization as the dependency on other companies is eliminated. For backward integration, extensive funds are required.