Forward Integration | Examples | How it Works? - YouTube

welcome to wallstreetmojo to know about this video forward integration

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subscribe us by clicking the bell icon below okay let's begin with the forward

integration this concept is more related to you know mergers and acquisitions

when there are different type of mergers and acquisitions that are taking place

some they go with the forward integration some with the backward

integration but what exactly this is okay we'll try and learn this

oh here it is written Amazon is making a big bet on physical stores and the business

of the food and they also have the own online retail giant has announced on

Friday that they're they're buying the organic grocery chain and the whole food

market for around 13.7 billion in cash so the deal values the whole food at

Dollar forty-two a share a twenty seven percent higher than where the stock was

actually trading on Thursday no issue let's begin with this topic first I'll

take you down to what is the forward integration well see a company can

decide to expand its business activities to include you know control of direct

distribution of the supplying of the company's product so these kind of

business strategy is also known as the forward integration now in practice

companies can of for forward or backward integration to gain the competitive

advantage over the competitors this helped our company to extend its reach

in the market they are helping basically to get the control or to control the

demand side on the contrary on the backward integration if you see it helps

the company to get D control on the supply side so it's something like this

let's say manufacturing that is you know the place where the product is getting

developed here let's say this is Factory okay then there are wholesalers right

then there is another supply chain here and then there is a retail

okay now let's say you are standing at this position so if you go back here

then it's a backward integration but if you are going ahead if the whole set is

acquiring the supplier of the supplies acquiring the retailer then that

scenario or probably let's take this vice-a-versa the case here this way can

be possible so in this scenario also if he's going back backward integration is

going front then forward integration so this is how the concept basically works

the name itself is coming from that end see in general in industry is made up of

you know five steps in supply chain which are raw material then there is

intermediate goods which is called as IG then they have manufacturing then

marketing, sales and after sales services now if a company plans to implement the

forward integration it has to move forward in the supply chain here they

have to move forward and while it is still me it maintains the control of the

initial place so the these integrations is done in order to achieve a greater

economies of scale now higher market share or greater control should be there

over the distribution by removing the third parties the company has the

ownership of the distribution process and does you know having a greater

control over the flow of the products now second how the forward integration

exactly works let's take an example here to make you understand let's say there's

a company called Intel right and we all know what Intel does the chip which they

prepare that goes inside a computer based on which that's what we call as

the Intel inside core i5 processor i three processor i7 processor and so on

and so forth and then the Dell company who basically manufactures the

laptops and they sell it and then there is a marketing

and then there is a marketing company here that is the marketing agencies so

when you move from Intel to dell what exactly that is the I'll just make it

over here when you move from here to here it's your forward integration when

you move from Dell to marketing agencies it is your forward integration but when

you move from marketing agencies to dell that's the backward integration same

with goes with Dell to Intel so if you see the forward example integration

example the company Intel over here it supplies the company Dell with the

processor which are the intermediate goods which are then placed within the

Dells hardware so if Intel decided to move forward in the supply chain it

may think of the modules of acquisition of Dell in order to all the

manufacturing portion of the industry and again if the Dell wants to implement

the forward integration it can think of taking control of the marketing agency

that become me previously used to marketed and end product but Dell cannot

take off Intel if it plans to integrate forward because only a backward

integration allows a moment up the supply chain now if the if Intel

basically decides to follow them then in the long run it can operate as what we

call as monopoly and in that particular scenario it can dominate the market by

being in control of both the raw material and the finished products okay

now the third thing when to follow the forward integration when to follow this

see when the existing distributor as well as the retailer's they are

expensive the existing ones and they are not able to match up the distribution

needs of the company second you know when the there is an absence of quality

okay the quality distributors right that

quality distributors in the market which helps the company in gaining the

competitive edge over the competitors and when the company has adequate

manpower when they have adequate manpower like human resources as well as

like financial aid advantage to meet the expenses of the distribution channel and

when the company has very good production facility the company is good

for production facility to satisfy the amount of the customers then the forward

integration in this case will help in standing the organization value chain

from production to sales and support of the products now when the existing

retailers and the distributors they have higher profit margins which increases

the cost of the product and that leads to higher price of the product so with

the help of these kind of integrations the company can they can reduce down the

costs they get a dual down the cost the company now of the distributions and

hence the product price will lower than those the sales we sale will surely

increase or will shoot up well I want to take an example here to make you

understand we'll take an example of Amazon here

Amazon's forward integration example of the wholesale food that we just

discussed at the very beginning when we started this topic see Amazon's

purchase of the whole food is one of the highest profile example again of the

forward integration strategy in the current Ian's Amish Amazon basically

publishes books itself as well as you know it provides the publishing

platforms for independent writers it also has its own what we call as

transportation you know that is Amazon transportation

services ATS it is known as an distribute which is forward and backward

integration towards supplier because Amazon directly delivers to the

end-users and the whole food acquisition is basically an example of the forward

integration strategy which serves as a brick and the mortar of the whole food

outlets for Amazon and the whole food outlets acts as a places to sell its

products during the course and have the customers pick them up at their

convenience level so this were a couple of the examples that you should have

understand there are some of the advantages that I want to take you

through this see what you get as a demanded thing is that you know

you get a low cost due to elimination of market reduction of the transportation

cost there is a proper coordination of supply chain as there is a synchronized

supply and demand and there is a bigger market share okay

there is strategy independence better opportunity of investment growth and you

know it creates an entry for the a barrier for the potential competitors

then we have the disadvantages now disadvantage is that you know it

leads to higher cost if new activities are not managed properly it may lead to

lower quality or for products and reduced efficiency due to lack of

competition there is a increased bureaucracy and high investment that may

lead to lesser flexibility their possibility of monopolies that may arise

on you know organization structure may become rigid you to shortcoming of the

implementation so that's it for this particular topic if you have learned and

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