SQA Higher Business Management Practice Exam

Backward vertical integration occurs when a company expands its operations to include control over its supply chain by acquiring or merging with businesses that provide the raw materials or services needed in its production process.

The correct answer demonstrates this concept perfectly. In the scenario where a coffee company takes over a coffee plantation, the manufacturer is gaining direct access to its supply of raw materials (coffee beans) by owning the source. This not only secures the supply chain for the business but also can lead to cost savings and improved quality control.

The other options illustrate different forms of business strategies. For instance, acquiring a distributor is an example of forward vertical integration, as it involves moving closer to the end consumer in the supply chain. Merging with a manufacturer by a mobile phone shop represents a lateral move rather than a backward or forward integration because it combines operations within the same stage of the supply chain. Entering the online market is a diversification strategy that expands sales channels but does not relate to controlling the supply chain.