Forward Integration

Forward integration refers to a situation when a company controls distribution centers and retailers where its products are sold. In other words, forward (downstream) vertical integration refers to a situation when a company makes a decision to carry out distribution and/or retail functions within the distribution channel. A typical advantage of forward integration is that producers can cut steps in the distribution process and sell higher up in the distribution process. For instance, a firm producing coffee beans could purchase a chain of cafes. Producers can also keep more control over the distribution and pricing of their goods by selling to retailers or consumers directly.

Short Note on Vertical Integration

The term vertical integration means coordinating the various stages of an industry chain when bilateral trading is just not beneficial. Vertically integrated businesses in a supply chain are united by way of a common owner. Generally each member of the supply chain generates a different product or service. Vertical integration is a dangerous, complicated, expensive, and difficult to reverse strategy. Vertical integration is an approach to prevent the hold-up problem.