Backward integration

Definition of backward integration

The process by which a company integrates upstream economic levels (e.g. raw materials or means of production) in order to become independent of suppliers.

Above all buyers with great financial strength, special technological know-how and the like. are often able to credibly threaten backward integration. This will give you a more favorable negotiating position. A threat to integration is particularly credible if the buyer's demand volume is large enough to be able to achieve all the relevant size savings with in-house products.

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