Which growth mechanism involves acquiring or merging with a firm operating at an earlier stage of the production chain?

Which growth mechanism involves acquiring or merging with a firm operating at an earlier stage of the production chain?

• A. forward vertical integration
• B. horizontal integration
• C. conglomerates
• D. backward vertical integration

Answer: (D)

Backward vertical integration is when a company expands by taking control of its inputs by acquiring or merging with a supplier or an earlier stage in the production chain. This growth approach helps secure supply, reduce costs, and improve coordination by bringing key inputs under the firm's control. The scenario describes moving to an earlier stage of production, which is exactly what backward vertical integration entails. For comparison, forward vertical integration would involve moving toward the end of the chain—toward customers, such as owning distributors or retailers. Horizontal integration means merging with competitors at the same production stage, and conglomerates involve diversification into unrelated industries. Thus, the described approach fits backward vertical integration.

Backward vertical integration is when a company expands by taking control of its inputs by acquiring or merging with a supplier or an earlier stage in the production chain. This growth approach helps secure supply, reduce costs, and improve coordination by bringing key inputs under the firm's control. The scenario describes moving to an earlier stage of production, which is exactly what backward vertical integration entails.

For comparison, forward vertical integration would involve moving toward the end of the chain—toward customers, such as owning distributors or retailers. Horizontal integration means merging with competitors at the same production stage, and conglomerates involve diversification into unrelated industries. Thus, the described approach fits backward vertical integration.