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CMA Final · Entrepreneurship and Startup · Value Addition

In the context of a startup's value chain, which activity is best described as 'backward integration'?

Backward integration is a firm taking over its own supply sources, so a juice company acquiring the orchard that provides its fruit is the example. Opening retail outlets is forward integration, while a helpline or courier tie-up does not involve acquiring upstream suppliers.

  1. AA bakery chain opening its own retail outlets to sell directly to consumers
  2. BA packaged-juice company acquiring an orchard that supplies its fruitCorrect
  3. CA software firm launching a customer-support helpline for users
  4. DA garment brand tying up with a courier company for deliveries

Explanation

Backward integration means a firm moves upstream and takes control of its input or supply sources. Buying an orchard that supplies fruit to a juice maker is upstream. Opening retail outlets is forward integration. A helpline is a service add-on, and a courier tie-up is an outsourcing arrangement, not ownership of suppliers.

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