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Simple English definitions for legal terms
backward integration
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A quick definition of backward integration:
Backward integration is when a company buys or owns the facilities that make the materials or parts needed to create their products. This helps the company have more control over their supply chain and can save them money. It's like if you made your own toys instead of buying them from a store. It can also be a way for a company to enter a new market or industry.
A more thorough explanation:
Backward integration is when a company acquires ownership of facilities that produce raw materials or parts for the company's products. This means that the company is bringing the production of these materials or parts in-house instead of relying on external suppliers.
For example, a car manufacturer may decide to acquire a steel mill to produce the steel needed for their cars instead of buying it from a third-party supplier. This allows the car manufacturer to have more control over the production process and potentially reduce costs.
Another example is a restaurant chain that decides to start their own farm to grow the vegetables and raise the animals needed for their menu items. This is backward integration because the restaurant is bringing the production of these ingredients in-house instead of relying on external suppliers.