Disadvantages of Forward integration:
(a) The proportion of fixed costs in the firm’s costs increases. As a result the firm is exposed to greater cyclical changes in earnings. Moreover, the fortunes of business are tied to the in-house distribution system. From this point of view, forward Integration increases business risk.
(b) Since its processes are interdependent, a slight interruption in one process may dislocate the entire production system.
(c) In the absence of proper balance between up-stream and down-stream units, the firm has to buy from or sell in the open market. The firm may be competing with its own customers.
(d) It is very difficult to efficiently manage an integrated firm because every business has its own structure, technology and problems.
34 Comments