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Forward Integration

A manufacturing unit may integrate with the business units which distribute its products. For instance, a Textile Company manufacturing various kinds of cloth may take over the wholesalers and retailers which are engaged in marketing its products. Forward integration is a means to attain control over the channels of distribution.

The advantages of vertical integration are as follows:

(i)    It reduces dependence on other enterprises for the sale of  products.
(ii)    It eliminates intermediate profits and thus reduces the cost of the final product to the consumer.
(iii)    There is steady production as a result of regular supply of raw materials and regular sales.
(iv)    Products of higher quality can be sold at higher prices.
(v)    Economies in storage, transport and handling of goods may be achieved

Vertical integration has the following drawbacks:

(i)    It does not eliminate competition as in case of horizontal integration.
(ii)    The size of the business may grow and it may bring inflexibility of operations.
(iii)    Since its processes are interdependent, a slight interruption in one process may dislocate the entire production system.
(iv)    It gives rise to concentration of economic power.

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