how forward integration works
often referred to as cutting out the middleman forward integration is an operational strategy implemented by a company that wants to increase control over its suppliers manufacturers or distributors so it can increase its market power for a forward integration to be successful a company needs to gain ownership over other companies that were once customers this strategy differs from backward integration in which a company tries to increase ownership over companies that were once its suppliers a company implements forward integration strategies when it wants to exert a wider control over the value chain of its industry optimize economies of scope and target better cost structure thereby increasing its industry market share and profitability the rise of the internet has made forward integration both easier and a more popular approach to business strategy a manufacturer for example has the ability to set up an online store and use digital marketing to sell its products previously it had to use retail companies and marketing firms to effectively sell the products the goal of forward integration is for a company to move forward in the supply chain increasing its overall ownership of the industry standard industries are made up of five steps in the supply chain raw materials intermediate goods manufacturing marketing and sales and after sale service if a company wants to conduct a forward integration it must advance along the chain while still maintaining control of its current operations its original place in the chain so to speak special considerations for forward integrationcompanies should be aware of the costs and scope associated with a forward integration they should only engage in this sort of strategy if there are cost benefits and if the integration won t dilute its current core competencies sometimes it is more effective for a company to rely on the established expertise and economies of scale of other vendors rather than expand on its own example of forward integrationfor example the company intel supplies dell with intermediate goods its processors that are placed within dell s hardware if intel wanted to move forward in the supply chain it could conduct a merger or acquisition of dell in order to own the manufacturing portion of the industry additionally if dell wanted to engage in forward integration it could seek to take control of a marketing agency that the company previously used to market its end product however dell cannot seek to take over intel if it wants to integrate forward only a backward integration allows a movement up the supply chain its case 