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CA Intermediate · Financial Management and Strategic Management · Strategic Choices

A Surat textile firm acquires a cotton-yarn spinning mill that currently supplies its weaving units, so that it controls its own raw material source. Which grand strategy does this represent?

This is backward integration. By acquiring the spinning mill that supplies yarn, the firm moves upstream in its value chain to control raw materials. Forward integration would involve moving toward customers, such as retail outlets, and horizontal integration would involve buying a rival weaver.

  1. AForward integration
  2. BBackward integrationCorrect
  3. CHorizontal integration
  4. DConcentric diversification

Explanation

The spinning mill supplies inputs to the firm, so the firm moves back along the value chain toward its raw material source. This is backward vertical integration. Forward integration would be acquiring distributors or retailers, and horizontal integration would be acquiring a competitor at the same stage.

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