Definition of Backward integration: Backward integration is when a firm buys a company who previously supplied raw materials to the firm. It is a type of vertical integration, but specifically refers to the merging with firms who used to supply the firm.
Example of Backward integration:
- A car firm buys the company who used to sell it tyres for its cars
- A coffee retailer like nescafe mergers with coffee growers thereby controlling supply of coffee beans
Backward integration may be beneficial if it helps secure a reliable source of supplies. It will be harmful if it leads to increased monopoly power and new competitors have difficulty accessing raw materials.