Understanding the Market — Entrepreneurship STD 11 Commerce — Question

Vertical expansion refers to any of the activities or functions, previously performed by the firm right from sourcing of raw material to supply of finished goods, through external agencies will now be performed by the firm itself. It is done through:

1. Backward Integration: It is a step back on the value-added chain towards the raw materials, by which the producer also becomes a raw material wholesaler.

For example: For manufacturing of Nirma' detergent an important raw material used ‘Linear Alkaline Benzyne' (LAB) which was earlier purchased is now manufactured by Nirma itself.

1. Forward Integration: It refers to taking a step forward on the value-added chain towards the customers by which the firm also becomes a finished goods wholesaler.