CMA practice question 3 of 35

Which of the following statements is true with regard to a vertically integrated acquisition?

Answer options

A: A grocery store chain that purchase a diary and begins to make milk-base products under its own brand is forward integrated

B: A movie producer that acquires a chain of theaters is backward integrated

C: a clothing manufacturer that acquires a chain of clothing stores is forward integrated Correct answer

D: A soda maker that purchases its leading competitor is backward integrated

Correct Answer:

C. a clothing manufacturer that acquires a chain of clothing stores is forward integrated

Explanation

Forward integration occurs when a firm moves closer to the final customer by taking over distribution or retail activities. A clothing manufacturer that acquires retail clothing stores is moving down-stream toward the consumer, hence it is forward integration.

Why Incorrect

A. Grocery chain acquires a dairy—moves upstream to a supplier; this is backward, not forward, integration.
B. Movie producer buying theaters—moves downstream; that is forward, not backward, integration.
D. Soda maker buying its leading competitor is horizontal, not vertical, integration.

References

1. Porter

M. E. Competitive Strategy

Free Press

1980

pp. 300-301 (definitions of forward vs. backward integration).

2. Collis

D. & Montgomery

C. Corporate Strategy

3rd ed.

McGraw-Hill

2008

pp. 124-126 (vertical-integration directions).

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