Research Into The History And The Theories Of Vertical Integration In Automobile Industry

Vertical integration is an important model of economic organization, which expresses the tight relations of the successive phases in the process of production and sale of one product. The research into the history and the theory of vertical integration makes great sense to the development of Chinese manufacturing. The automobile industry is one of the dispensable industries in modern economy; it holds high status in the history of world industry. According to the history and experience of world automobile, there stands out economic scale and oligarch system in the industry. The most important reason which leads to the fact is that highly developed countries in automobile industry all carried into the strategy of vertical integration in the certain phases of the development of their automobiles.The writer firstly illuminates the process of vertical integration in automobile. Internationally, the Ford Corporation is the first one that carried out vertical integration so that its scale was greatly expanded, playing a leading role in the American and even the world automobile industry. Subsequently the General Motor and other automobile companies became the ones with typical vertical integration, and innovated in business management, technology improvement and industrial organization. In Japan, the automobile industry made the strategy into practice; the Lean Production which was originated by the Toyota brought profound effect to the vertical integration. Compared to developed countries, the automobile in China did not start to develop early; under that circumstance, the government pushed the Chinese companies to undertake all tasks in order to establish the whole industry as soon as possible. That made the industry highly vertically integrated, but this kind of integration was not in the correct direction. After 50 years or more, modern Chinese automobile has been stepped into the international society; with inner impetus, it establishes a competitive industry chain through integrating resource of upper and down stream. Yet in this process, there are still some problems such as small enterprise scale and comparatively backward technology, testifying the relation between the degree of vertical integration and enterprise performance. In succession, the main content of the system of vertical integration is summarized. Based on the history of vertical integration in world automobile, American scholars explain the facts. The explanation contains the definition, the motivation, the modes and the effects, which can be used in the Chinese automobile. The motivations of Chinese automobile companies are cutting down transaction costs, increasing concentration ration and industry barrier, stabilizing the company's production and sale and enhancing the ability of controlling the industry chain. These specific modes include establishing groups, merging and acquiring and joint venturing. The strategy can bring lower transaction costs, scale economies and synergy effects to automobile companies.Finally, the writer brings the theories into the practice of Chinese automobile industry; analyses some problems in the process of vertical integration. Allowing for the goal of becoming greatly competitive and being the base of the world automobile production and considering past experiences, some advices are given. The vertical integration should be focused on enhancing the core competency of company; technology alliance in the upper stream and explore more in the down stream. Besides, the government needs to lead and support the industry in a more reasonable and moderate way. Above all, the goal of Chinese automobile industry will be achieved in future.