Backward Integration
Categories: Company Management, Banking
One would think that this a civil rights term...and not a good one. Not so. Backward integration runs: Company A builds a product. Let's say it's an electric car. But company A buys the electric motors for the car from another company, Company B, for $5,000. Rather than pay Company B $5,000 per motor (the cost includes a markup because Company B wants a profit too, right?), Company A buys Company B. The cost to produce the motors is actually $4,000. By owning Company B, Company A owns another portion of the supply chain, enabling a decrease in production costs while keeping the market cost of the car the same. End result is an increase in profits for Company A.
