Forward & backwards integration

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  • Profile photo of kamran_bsh
    kamran_bsh
    Member
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    Can someone tell me…If a company is doinf forwards or backwards integration then this means it has lower prospects for achieving economies of scale..Why?


    Profile photo of gromit
    gromit
    Keymaster
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    I don’t think that forward/backward integration would have to cause this, but I suppose it might if you make certain assumptions. It’s original operations should be no less busy (so same efficiency). However, if you take over a supplier you also take over all its fixed costs. If the supplier was large and you only sold its output internally, output might have to fall and this could reduce economies of scale. However, that’s a rather contrived argument.

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