Economic Analysis, Industrial Integration

Starting from 1970s and 1980s, industry convergence has been growing, the industry original boundary becomes dim and disappearing, i.e. the business overlapping, strategic alignment, merging and acquisition between two and more industries has occurred ever since. The primary convergence is happening in 3C, i.e. computer industry, communication industry, and consumer-electronic industry. As time goes by, the convergence expands to telecommunication, TV and broadcasting, Internet and other approaches of media. Generally, industry convergence dominates the IT and telecommunication industry, and becomes more and more a trend in finance, cargo service, energy, and manufactory.As an economic phenomenon, industry convergence is prospering in global area, but the strength of research of academia is fragile, in particular, the literature from economic theory perspective deeply on this phenomenon is few. All the more, the current literature avoids mentioning the relationship between convergence and division of labor, only a few mentions of that, but lacks profound exploration. Hence, on one hand, if we cannot demonstrate convergence is more effective and cost-cutting than the division of labor, we cannot see the necessity of convergence; on the other hand, if we are against the division of labor for the reason of embracing and illuminating convergence, we will be facing the risk of clashing with classical and mainstream economics, because since Adam Smith, the division of labor creates wealth and growing income has been a common sense. In this case, the theoretical status of industry convergence is embarrassing, although management could avoid the division of labor, still, economic analysis must face this dilemma.This paper is about to establish a general analytical framework, capable of interpreting and forecasting the different convergence phenomenon through decoding the relationship between industry convergence and industry division. It involves the financial mixed operation and convergence of three networks (i.e. telecommunication, CATV, and computer), and includes convergence between Hi-tech industry and traditional industry as well. Hopefully, this framework could throw light on the issues like, what is industry convergence? What is its potential impact? What is the precondition of industry convergence? Of course, to research these questions is a tough task, but the paper hopes to be harbinger.The first innovation of this paper is to analyze the industry convergence from the perspective of division of labor. While some research is based on technology evolution and technology innovation, this paper is to stress the relations between convergence and the division of labor, an economic perspective. As regarding the division of labor, it is classified and stratified into in-and-between enterprise, a common sense from Marxism. But convergence is an opposite of division of labor, when they both lie in the same sphere and same stratum, they are contradictory; while they are positioned in different stratum, they may be coexisted and mutual strengthening. Furthermore, convergence will destroy the division of labor from the same stratum, but brings about more division of labor and specialization on other stratums. A so-called industry convergence is a process of changing division of industry-between into that of industry-inside, which implies that the division of labor deteriorates and disappears between different industry, but develops in the opposite way inside the industry. In the process of industry convergence, the most influential enterprise or the majority of enterprises start from a single operation into multiple-operations, which is to say that these enterprises step forward the convergence process and decreases their specialization level. When the enterprises enlarge their business scope, the original social division or market division changes into that inside enterprises, in return, these enterprises gain a of scope economy, scale economy and mutual strengthening effect.The second innovation lies in two deduction, condition deduction (D One) and converging deduction (D two). First, the paper starts from the concept of asset specificity and defines asset universality, i. e. the extent of asset changing into other function, not in the price of sacrificing its productive value. When any asset changes into other function, it will pay the restructuring cost, transaction cost, and time-lag cost, all these costs could be summed up as switching cost, which is used to judge the extent of asset universality.D One describes the state of industry convergence, the boundary of convergence or non-convergence when the switching cost is zero. Theoretically speaking, when production element is at free mobility and the switching cost between a certain industry and other industry is zero, if Subadditivity exist in the enterprises from different industry, there ought to be some industry convergence.D Two describes the law that lies in when switching cost is not zero. It is theoretically expressed as when productive elements are in free mobility and Subadditivity exists, the industry convergence moves in the opposite way of asset switching cost, that is to say that when asset switching cost decreases, industry convergence increases; when asset switching cost increases, industry convergence decreases.These two mathematically deducted conclusions are tested by the development history of industry convergence, for instance, the universal asset like, universal technology, universal facility, universal human resources disseminate in various industries, leading to the industry convergence during the past 30 years. Generally speaking, the asset universality increasing mainly originates from asset softening and asset modulization.The third innovation focuses on the comprehensive illuminating industry convergence effect in a step-by-step way, which comprises of cost cutting effect from a micro perspective, competitive and cooperative effect from a between-macro-and-micro perspective, industry and economic growing effect from a macro perspective. The conclusion is that industry convergence helps to completely use the co-sharing asset and cut the transaction cost, helps to form the market structure of effective competition and competitive cooperation, helps to innovate products , to improve industry structure and push the sustainable development as well.Additionally, the paper summarizes the theoretic origins of industry convergence. Although this is a literature screening work, it has a trail-blazer impact for the future study, because 100 years ago, Marx raised the issue of combined production based on the division of labor, Marshall raised that division of labor on different stratum should have different speciality. Hence, convergence either in practical form or in conceptual form existed many years ago, though it was not predominating.This paper sticks to Marxist economics and Material Dialectics, based on cost-benefit analysis, and centers on maximization to implement conception founding, logic reasoning and model testing. The paper, combining literature analysis, institutional analysis, mathematical analysis, historical analysis, and case study, tends to coordinate normal and positive analysis, logic and history, macro and micro, in order to have a full and deep picture of industry convergence from multiple angles.The paper's theoretical implication lies in 1), preliminarily interpreting the relationship between industry convergence and the division of labor. Argument in this paper is not only compatible with the argument of division of labor bringing about income growing, a "classic, neo-classic, new classic consensus" or mainstream economics points of view, but also points out the limitation of the division of labor in specific stratum and condition, which is the source of occurrence and development of industry convergence; 2), focusing on analyzing the cause and premise of industry convergence, and raising the premise model for the first time. The premise model is a demarcation of industry division and convergence, even though it is simple, its formation and mathematical testing still needs to be further improved, and some conclusion is likely to be proved false, however, it represents the exploration of industry convergence at certain stage, and its attempting to seek for the universal answer is the great mission of theoretic innovation.Its Practical implication lies in: under this framework of industry convergence, either government or enterprise will have a clear and scientific judgment of the following question, for instance, to welcome industry convergence or refuse it, if accepted, by what means or what way industry convergence should be pushed forward, how to make the effect of industry convergence maximizing. Replying to these questions helps the government to push the industry regulation reform and industry innovation, and helps the enterprise adjust its running orientation, competition tactics, organizational structure and management behavior as well. Because the paper is limit in terms of its focus and length, it doesn't allocate a chapter to throw light on the government policy and corporation strategy, but the issue is always involved in the theoretical analysis.