Research On Mechanism Of How Vertical Integration Affects Performance Of Steel Enterprise

The steel industry is closely connected to the sustainable and harmonious development of China's national economy.Trough several decades'development,the steel industry of China has already held place in the world,however,China is one of the world biggest countries in term of steel production but not the great power.In recent years,because of the relative scarcity of mineral resources,the competitions between steel enterprises are not only internally,but also in its upward suppliers and downward distributors.Under this background, what makes us attract and interest is the fact that many steel enterprises choose to vertical integration simultaneously.Using the Struture-Performance(SCP) paradigm of industrial organization theory,this paper analysises the mechanism of vertical integration affecting enterprises performance. Vertical integration can reduce the production cost and transition cost,the lower cost will inevitably lead to an increase in profit in the technical conditions and supply and demand conditions remain unchanged;Vertical integration through internalizing transactions and ensuring that effective communication of information between up-down stream can prompt the technology innovation and enhance the enterprises performance.Vertical integration through raising entry barriers to impede the entry of new enterprises,thus reduce the market competition level,and cause the enterprises profitability enhancement.In recent years vertical integration indexes of steel enterprieses is volatile because of the raw material costs fluctuating,soaring iron ore prices leads to decrease of vertical integration indexes of Chinese steel enterprises.This paper uses two indexes——profitability of the business and develop the capacity of steel enterprises to measure the performance,Empirical results show that the main business of steel enterprises margin(steel enterprises profitability) and operating profit growth(the growth of steel enterprises) also showed the same trend. regression results show that steel enterprises can obviously improve vertical integration of the proceeds of the steel enterprises,and contribute to the future growth of enterprises.