Analysis Of Vertical Integration Based On The Principles Of Enterprise Evolution

Vertical integration strategy refers to the restructuring or mergers of enterprises, to provide products and services in the whole industry chain processes, establishes a competitive advantage in the industrial chain. It is the most important vertical type in economic organizations, which reflects close economic tie between the various stages of commodity production and distribution process. Thinking of the industrial development cycle, the intensity of competition in the industry and whether an enterprise has a high right trading decisions, how to execute vertical integration, would be a significant impact to the production and performance. Therefore, the study of the fundamental factors which determine vertical integration behavior, and accordingly come up with strategies to achieve more efficient enterprise organizational model, that is meaningful.The main theories of the analysis of vertical integration includes the theory of industrial organization and transaction cost theory:Industrial organization theory suggests that the dependencies of the production process (technology, production organization, the relationship between supply of raw materials, etc.) between upstream and downstream enterprises are the main reason for the formation of vertical integration. This theory sufficient emphasizes on the importance of industry location, analyses specific industry chain integration strategy under asymmetric information in detail, but its shortcoming is not fully considering the heterogeneity of enterprise resources, and without considering the important factors of the enterprise operations which are ever-changing, such as resources, technology, process, capacity factor, etc; transaction cost theory suggests that whether to implement vertical integration depends on a comparison between the market exchange cost and the cost of merger, to a certain extent in line with reality, the lack of transaction cost theory is that whether is the vertical integration happening or not, depends on a comparison between the cost of the integration and the cost of merger transaction, but does not envisage the enterprise profits generated by the economies of scale of the implementation of vertically integration, and without dynamic, long-term perspective to analyze enterprise operations. Different from the original theory which based on the theory of industrial organization and transaction cost analysis, enterprise evolution theory analyzes the rules of enterprise production from the dynamic, time-varying perspectives under an open, complex and changing environment.This paper analyzes the vertical integration strategy of enterprise from a new perspective on evolutionary economics, enterprise evolution theory indicates that the process of the enterprise development is a result of a variety of factors affect each other. These factors form an orderly organization by circulatory way, in a specific environment, one factor in a dominant position, in another certain condition, another factor plays a dominant role. The fundamental starting point of vertical integration is to enhance the dominant factor level in the process of enterprise development. so when the dominant factor is resources or demand for markets, the enterprises should adopt the strategy of vertical integration that will help improve the level of these elements; However, when the technology or the system as the dominant factor, Enterprise does not have to adopt vertical integration, because the strategy of integration at this time does not improve the level of these elements. These findings clearly distinguish from the interpretation of vertical integration by the theory of industrial organization and transaction cost, which fully reflects adaptation mechanism of the production and operation, but also put forward the inspiration for the enterprise whether adopt the vertical integration strategy.