| After30years of development, the lighting industry of Guzhen, Zhongshan, Guangdong hasbecome a distinctive regional manufacturing industry in the Pearl River Delta, a leading lighting basein China, and the largest lighting production base in Asia. In addition, Guzhen is one of the fourprofessional lighting production bases and markets in the whole world. During the pursing ofsustainable development, LED manufacturer, the Sunshine Lighting Company wants to make theattempt of the backward integration. The difficulties and solutions of the Sunshine LightingCompany’s backward integration are significant to the development of regional small-andmedium-sized enterprises, especially to the integration of manufacturing enterprises and theirupstream and downstream value chain.This paper is based on a thorough research of the Sunshine Lighting Company, Guzhen Town.By using the Williamson paradigm of transaction cost theory and the GHM model based onincomplete contracting theory, this article analyzes the status quo of the company, the motivation ofbackward integration and the opportunities, challenges and problems it might encounter. Thisanalysis believes that the company should implement backward integration under the currentsituation. The existence of bounded rationality, none-description and market uncertainty willcertainly lead to incompleteness of contracts, even to the rip-off behaviors. The asset specificity ofheatsink plays a very important role in the transaction between the Sunshine Lighting Company andA company. In order to eliminate the harmful impact brought by the opportuism of A Company andto avoid unnecessary losses, the Sunshine Lighting Company should invest in assect specificity andimplement backward integration to control the production and supply of heatsink, the important kitof high asset specificity. In addition, this paper believes that implementing backward integration notonly brings benefits, but also causes negative impacts, which is a question should be concerned. |
