China's Steel Companies Vertically Integrated Fixed, Patterns And Performance

Vertical integration is to extend along the industrial chain, focusing on the core product and technology of the enterprise, to decide trade whether internally or externally actually. It is no doubt that whether and how enterprises execute vertical integration strategy will affect the performance of enterprise as well as the industry it situates. It is a strategic problem for corporations as well as the industry.The writer firstly identifies the conception of vertical integration, summarizes the causes and models and constructs the framework to analyze what leads to vertical integration. Vertical integration is expected to remedy information asymmetry, impose entry barriers and price discrimination. In addition, asset specificity and uncertainty are internal causes for vertical integration. Enterprises hope they can enhance market power, cut down transaction costs and improve performance through vertical integration. The related demonstrations both at home and abroad are reviewed, and there are four methods to measure vertical integration degree, such as VAS, I/O.Secondly, the current situation of steel industry and vertical integration are analyzed. The writer puts forward that steel industry are during its period of growing up and studies the causes and models by vertical integration events of listed company, which indicates that asset specificity and uncertainty accelerate backward integration of steel companies, meanwhile, information asymmetry and market power stimulate forward integration. As to the integration model, the listed steel companies tend to integrate backward by combined investment and integrate forward by independent investment and construction.Finally, the writer demonstrated on the basis of panel data from 2003 to 2007 of 27 listed steel companies. As a result of demonstration, there is no noticeable relations between vertical integration and performance, but scale economy is noticeable. It is related with the lifecycle of steel industry and the system restriction of state-owned enterprise. Therefore, only vertical integration of steel companies that bases on scale economy and value chain extension can improve performance.