Backward integration is a type of vertical integration.
In backward integration, a firm expands in such a way that it no longer has to buy
certain inputs. Instead, it starts to produce those inputs
itself.
An example of this might be seen in a firm that
makes baked goods. This firm might buy up farms that grow wheat or mills that grind
wheat into flour. By doing this, they would be making these inputs for themselves
rather than buying them.
A firm might do this because it
wants more control over the quality of its inputs. Alternatively, it might do this
because it wants more control over the supply of its inputs -- it might not want to risk
having its suppliers run out of the inputs or be late in providing them. By pursuing a
strategy of backward integration, the firm can have more control over its supply
chain.
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