Backward integration

The positives of operating with Joint Liability Groups (JLGs) go much beyond acquiring social collaterals from each other on microfinance loans.

The demographic we deal with hardly gets the opportunity to go to any formal management school and learn how to run a business. But a lot of the gaps are filled when a JLG’s members sit together and share experiences, and learnings and also try to resolve each other’s issues. Sometimes, VFS representatives also sit in those meetings to contribute their ideas.

One such topic that I want to discuss here is Backward Integration. Those of us who have learned formal management are already aware that backward integration happens when a company expands its role to fulfill tasks earlier done by businesses up the supply chain. In simpler words, it happens when a company either expands to play the role of its suppliers or acquires a similar company. As with any business concept, it has its pros and cons, depending on the business issue it is trying to resolve. But that is not the topic of discussion here.

I wanted to share an experience of interacting with a VFS customer, Rupali Maity, whose husband is a construction worker. The male members of the entire extended family have taken up similar professions in construction. Of the women members, Rupali was the first to come up with the idea of starting a business of paint dealership.

Rupali already had a cosmetics shop that she ran along with her daughter. As the business stabilized, it was time to expand to something new. Her son was also not earning much. Of the several ideas that cropped up, paint made the most sense. After all her husband and his team of construction workers provided a steady sales funnel.

It is no surprise that the business took off well, and also motivated the other women members of the extended family to follow. It came up in our conversation that around 12 relatives of Rupali have followed her example and, with the financial support of VFS, started dealing in paint, not in the same locality or JLG, but dispersed across.

What had driven Rupali towards the decision is similar to the concept of backward integration. While Rupali might still have no clue that there is a term coined for what she did, her application of common logic made her take the same call.

Our society has several dynamics, which lead to repetitive occurrences of a similar phenomenon, that later get consolidated under a topic and taught as a management principle. Learning it from a business school helps in knowing them upfront before venturing out into the professional world. But even those who are not fortunate to afford such education can gather the pearls of wisdom through proper social interactions and experience sharing.