Forward integration

Forward integration is where the company gains control of the business activities that are ahead in the value chain of its industry, this might include among others direct distribution or supply of the company's products. It is an operational strategy implemented by a company that wants to increase control over its suppliers, manufacturers, or distributors, so it can increase its market power.

This is a type of vertical integration of the supply chain and is also known as “cutting out the middleman”. The ultimate goal of forward integration is to increase the power and ownership over the forward of their value chain.

In forward integration, the company acquires or merges with a distributor. In backward integration, the company acquires/merges with a supplier or manufacturer. The strategy eliminates various transaction and transportation costs. This subsequently results in a lower final price for the company’s product.

Example of forward integration: A FMCG goods production company acquires or starts a distribution company. Now the company can have entire control over their distribution process. Other example of forward integration would be a farmer who directly sells his crops at a local grocery store rather than to a distribution center that controls the placement of foodstuffs to various supermarkets.

An FMCG company like Britannia builds up its distribution network, including regional warehouses, to directly sell to the retailers without going via wholesalers.Forward integration helps a company extend its reach in the market, helping it get control of the demand side.
Forward integration