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CA Intermediate · Financial Management and Strategic Management · Strategic Choices

Sundaram Textiles, a Coimbatore-based yarn maker, buys a cotton ginning unit that supplies it with raw cotton, so that it no longer depends on outside ginners. Which grand strategy does this represent?

This is backward vertical integration. The firm has taken over a supplier of its key raw material, cotton, moving upstream in its value chain. Forward integration would involve acquiring customers or distribution channels, and diversification would mean entering unrelated or new product lines.

  1. ABackward vertical integrationCorrect
  2. BForward vertical integration
  3. CConcentric diversification
  4. DConglomerate diversification

Explanation

Acquiring a supplier of its own raw material moves the firm upstream in the value chain, which is backward integration. Forward integration would mean acquiring distributors or retailers. Diversification involves entering new, different businesses, which is not the case here since ginning feeds directly into yarn making.

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