A business combination involving firms at different stages of a supply chain is characterized by the integration of entities that previously operated as buyer and seller. This union consolidates operations across sequential production or distribution processes. For example, a manufacturer of clothing integrating with a textile producer exemplifies this type of consolidation; the manufacturer now controls its source of fabric, a vital input for its finished goods.
Such integrations are undertaken to enhance efficiency, reduce transaction costs, and secure access to crucial inputs or distribution channels. Historically, businesses pursued these arrangements to mitigate market uncertainties, such as price volatility or supply disruptions. Furthermore, these consolidations can lead to improved coordination and quality control across the value chain, potentially resulting in lower costs and increased profitability.
