CS Professional · Strategic Management and Corporate Finance · Competitive Positioning
A company decides to buy its own plantation to supply tea leaves that it earlier bought from outside growers, hoping to capture more value and control quality. Which concept in value chain analysis does this illustrate?
This is backward integration. The company moves upstream to control the supply of its raw material, tea leaves, which it previously bought from outside growers. This lets it capture more value and control quality, unlike forward integration, which moves toward distribution or customers.
- AForward integration
- BBackward integrationCorrect
- CHorizontal diversification
- DOutsourcing of support activities
Explanation
Taking over the supply of inputs that were earlier bought from suppliers moves the firm upstream in the chain, which is backward integration. Forward integration would mean moving toward distribution or retail. Outsourcing would be the opposite of bringing the activity in-house.
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