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CA Intermediate · Financial Management and Strategic Management · Strategic Choices

Kaveri Motors, an automobile manufacturer, acquires a tyre company that supplies it with tyres. The acquisition is intended to secure supply and cut procurement costs. Which strategy is this, and under which broad category does it fall?

It is backward vertical integration, which is an expansion strategy. The automobile maker acquires its own supplier of tyres to secure supply and reduce costs. Forward integration would involve dealers or customers, and horizontal integration would involve competitors, so those options are wrong.

  1. ABackward vertical integration, a type of expansion strategyCorrect
  2. BForward vertical integration, a type of expansion strategy
  3. CHorizontal integration, a type of stability strategy
  4. DConcentric diversification, a type of retrenchment strategy

Explanation

The tyre company is a supplier, so the manufacturer moves upstream: backward integration, which is an expansion (growth) strategy. Forward integration would be taking over distributors or dealers. Horizontal integration involves competitors at the same stage. Diversification and retrenchment are mislabelled in the other options.

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