Integrating backward generates cost-savings only when the volume needed
is big enough to capture the same scale economies suppliers have and when
it can match or exceed suppliers' production efficiency. Backward integration
usually generates the largest cost advantage when suppliers have
sizable profit margins, when the item being supplied is a major cost component,
and when the needed technological skills are easily mastered. Backward
vertical integration can produce a differentiation-based competitive
advantage when a compai(,Y, by supplying its own parts, ends up with a
better-quality part and thereby significantly enhances the performance of
its final product.