A Cross Industry Empirical Study On The Macro-determinants Of Vertical Integration

Vertical integration (including forward integration and backward integration) is an important strategic activity for enterprises which deals with the problem of"make or buy"decision. An integrated firm will rely on the internal production rather than purchasing from the external market.There are four major research paradigms examining the determinants of vertical integration: Industrial Organization Technology, Transaction Cost Theory, Resource-based Theory and Real Option Theory. And the empirical study all focus in one industry or several industries. In this study we try to combine the pros of the four paradigms and build a systematic theoretical framework to study the determinants of vertical integration in Chinese industrial practice. And we try to break the industry boundary to conduct a cross industry empirical study of the determinants and vertical performance.We use the VAS index method to calculate the vertical integration of the firm as well as the industry. And we gauge the macro determinants and vertical performance, and then we carry out the empirical study on the relationship between the industrial vertical integration, the macro determinants and the vertical performance. According to the result, we can see that enterprises in China apt to vertical integration for the purpose of gaining profit, and they can always make it in certain circumstances, however, they cannot realize the purpose of fast growth through vertical integration, we give our suggestions on the corporate vertical integration decision based on these facts.