What term describes expanding by purchasing suppliers at an earlier stage of production?

• A. Vertical Integration (Backwards)
• B. Vertical Integration (Forwards)
• C. External Growth
• D. Diversification

Answer: (A)

Vertical integration is about expanding control over more stages of the production process. When a company buys its suppliers, it moves backward along the supply chain, which is called backward vertical integration. This can help secure raw materials, reduce dependency on external suppliers, and potentially lower costs, though it may require more capital and management.

If a firm were to buy retailers or distributors instead, that would be forward vertical integration. External growth covers mergers or acquisitions with other firms in general, not specifically within the same supply chain, and diversification means entering new, often unrelated, product lines or markets.