An Empirical Test Of The Strategic Option Factors Influencing Vertical Integration Decision

As an important issue concerning the boundary decision of an enterprise, vertical integration has attracted great attention from both empirical and theoretical communities. More often than not, vertical integration involves significant strategic investment and high level of uncertainty; it has a huge impact on a company’s competition status and performance, thus crucial to its existence and development. Therefore, finding what factors affect the decision-making of vertical integration is of great important to company’s strategic management. Existing theories concerning vertical integration have found out that many factors--macroeconomic trends, uncertainties of market demands, relevancy of technology, industry competitive environment, industry life cycle, industrial concentration etc. have a bearing on the decision-making of vertical integration. However, in our ever-changing strategic environment, are there any other deeper factors affecting vertical integration decision? In order to conduct a deeper research on the factors influencing vertical integration decision in the background of the highly uncertain strategic environment in the 21st century, this paper applies strategic option, which is a new concept in strategic management under uncertainty, into vertical integration strategy, hoping to find out the strategic option factors that influence vertical integration decision. This paper combines qualitative analysis and quantitative analysis together; it also combines theoretical analysis and empirical study together, performing a research on the influence of strategic options on vertical integration decision.This paper first reviews relevant theories about vertical integration and strategic options, then it applies strategic options to vertical integration strategy, discusses how different types of strategic options take their forms in vertical integration and their respective influences on vertical integration decision; it comes to four hypothesis of the influence of strategic options on vertical integration decision. After that, this paper performs an empirical study to testify the hypothesis, targeting 20 industries including 490 listed companies as research samples.Bases on the research and analysis above, this paper come to the conclusion that: of the four types of strategic options, defer option, growth option and switch option all have negative influences on vertical integration strategy decision; quit option doesn’t have significant influence on vertical integration decision. In the end, this paper makes a thorough analysis and explanation of the results of the empirical study and gives some relevant suggestions to the development of China’s industries concerning vertical integration.