Research On Motivation For Vertical Integration Between Enterprises

Vertical relationships between enterprises played a vital role in the development of enterprises, and the governance of inter-firm vertical relationships must follow a certain economic law. In China's planned economy period, all production activities were like in a large factory, managed in the way of planned measures. With the market-oriented reform, the firms formed autonomous, self-financing enterprise system through property rights reform, and reached the the subsequent wave of mergers and reorganization among enterprises enterprises from a nationwide "a game of chess" to the present numerous and varied subjects of market transactions, in another words, vertical inter-firm relations have been changing. The current global financial crisis implements an increasing impact on China, In addition to asking the central enterprises "heating", SASAC hope all levels of state-owned enterprises to speed up the process of reorganization and acquisition. Because of the enterprises bigger and stronger motivation, the State Assets Supervision and Administration Commission accelerate the pace of the restructuring of state-owned enterprises. However, according to the theory of vertical integration, every economic organization has their own boundary, the big companies will not necessarily be stronger companies. An expansion of enterprises in the process of self-organization and coordination capacity must take into account transaction costs and market comparisons.This article attempts to sort out domestic and foreign enterprises in the theoretical literature of vertical integration, based on the analysis of vertical integration, motivation, and then set up an enterprise vertical integration decision-making framework for corporate learning. In this paper, transaction cost theory, the new property rights theory, industrial organization theory, and strategic management theory studied the vertical integration of inter-enterprise decision-making motives in different perspectives. Based on analysis and comparison of various theories, I believe that there is no one single theory that can explain all vertical integration of different enterprises in different economic times, so this paper attempts a comprehensive analysis of the various theories, and integrates the different variable factors into a unified framework, namely, taking incomplete contract theory as the basic framework, finally, we conclude a vertically integrated decision-making framework, and take China's construction industry as an example demonstrated.This paper is divided into five chapters, and the main part is ChapterⅢandⅣ. The first chapter is introductory, the main topics of this paper describes the background and significance, innovation, and shortcomings.ChapterⅡreviewed the theory of vertical integration, made a brief description, mainly introduced classical economics, neo-classical economics, institutional economics and other business theory to explain vertical integration.The third chapter mainly analyzes the various motivations of vertical integration: transaction costs, property rights, market structure, economic conditions, technical factors, as well as information under the new technology. In addition, this section also analyzes the disadvantages of vertical integration. In the last section of this chapter, incorporates a variety of motives for vertical integration, to explain to the premise of incomplete contract, to transaction cost theory as a framework, the main factors that affect the integration of motivation into the transaction cost theory of the three dimensions. Vertical integration based on the motives and cost analysis, the final constructed under the framework of incomplete contract model of the integration of motivation.In terms of the way of acquisition of intermediate products, enterprise choice of self-or-buy decision-making is dependent on:the comparison of the costs of signing contract adding the costs of performance of the contract and the cost of self-making. Therefore, the decision variables of vertical integration decision-making framework are the specific variables rooted in the above variables. In this way, ChapterⅣis based on theoretical analysis of ChapterⅢ, relating the various motivations into the specific factors in practice, through a comprehensive consideration of the various specific factors, to explain the relatively complete vertical integration of decision-making framework. In the fifth chapter taking the construction industry as an example for analysis, according to the construction industry and business trends, the paper provides a theoretical basis for the construction industry development strategy of vertical integration. In my paper, the analysis of vertical integration motivation did not involve other non-economic factors, such as entrepreneurship, enterprise culture, philosophy and other non-economic factors. However, I believe with the advent of the era of knowledge economy, these factors in decision-making in the enterprise vertical integration, are playing an increasingly important role.