Which of the following is the best example of forward vertical integration? A) a car dealership opening up its own automobile manufacturing plant B) a car company opening its own dealerships to sell its products directly to customers C) a car company open (2024)

FAQs

Which of the following is the best example of forward vertical integration? A) a car dealership opening up its own automobile manufacturing plant B) a car company opening its own dealerships to sell its products directly to customers C) a car company open? ›

Final answer:

This type of vertical integration is conducted by a company advancing along the supply chain. A good example of forward integration would be a farmer who directly sells his crops at a local grocery store rather than to a distribution center that controls the placement of foodstuffs to various supermarkets.

Another example of forward vertical integration is a car manufacturer that decides to start selling its cars directly to consumers buy purchasing a dealership network.

The best example of vertical integration would be Comcast's ownership of the Philadelphia Flyers, NBC, Universal Films, and the Golf Channel. Vertical integration refers to the process by which a company acquires control over multiple levels of its supply chain.

If Wal-Mart were to purchase a factory to make socks and it planned to sell these socks in its stores, this would be an example of forward vertical integration.

For example, Apple is vertically integrated, designing its hardware and software and selling products directly to consumers through its own retail stores. This allows Apple to control quality, costs, and the overall customer experience more effectively.

In economics, vertical integration is the term used to describe a business strategy in which a company takes ownership of two or more key stages of its supply chain. A vertically integrated automaker, for example, might produce automobile components and vehicles and also sell directly to customers.

Tesla's approach to vertical integration—owning as many aspects of production as possible, from raw materials to final assembly—is a stark contrast to the traditional automotive industry model of outsourcing key components and relying heavily on global supply chains.

There are two basic types of vertical integration: Backward integration occurs when a company decides to buy another business that makes an input product for the acquiring company's product. For example, a car manufacturer pursues backward integration when it acquires a tire manufacturer.

Many reasons accounted for the success of Ford and GM, but argu- ably the most important was the ability of the two companies to make most of their own parts instead of buying them. Ford and GM both regarded the strategy, known as “vertical integration,” as an important competitive advantage.

What was the first example of vertical integration? ›

In the late 1800s, Carnegie Steel Company was a pioneer in the use of vertical integration. The firm controlled the iron mines that provided the key ingredient in steel, the coal mines that provided the fuel for steelmaking, the railroads that transported raw material to steel mills, and the steel mills themselves.

An ideal example of a vertically integrated firm would be: Sylvania, which produces light bulbs, notebooks, camcorders, and so on.

An acquisition is an example of vertical integration if it results in the company's direct control over a key piece of its production or distribution process that had previously been outsourced.

The grocery store buys coffee from a vendor and resells it to its shoppers. The owner of the grocery store wants to pursue forward vertical integration. To take control of the grocery store's production and increase its profits, the owner makes a plan for the grocery store to start producing its own specialty coffee.

Conversely, forward vertical integration is said to occur when a company invests in another foreign company which is ranked higher in the supply chain, for instance, a coffee company in India may wish to invest in a French grocery brand.

Forward integration

For example, IKEA – a DIY furniture company – needs wood to manufacture furniture. IKEA decided to acquire a wood supplier, which is an example of backward or “downstream” integration. Generally, backward integration aims to seek control over supply or manufacturing of a product.

Amazon's Acquisition of Whole Foods

One of the highest-profile examples of forward integration in recent years was Amazon's purchase of Whole Foods. Amazon was already a vertically integrated company in many ways: It publishes books itself and provides a publishing platform for independent writers, for example.

Forward integration is when a company controls its distributors or distribution process. For example, Amazon relied on various delivery services, such as UPS or FedEx to deliver its good to its customers. By purchasing and creating its own vehicles to deliver goods, Amazon forward integrated.

Forward diversification

An example of this could be a mining company that decides it wants to expand into processing and development of its raw product.