Vertical Non-Integration of Enterprises - Research Based on the Transformation of the International Production System

Author: Cheng Xin Zhang
Publisher:
Publish Date: 2006-04-01
Features: In contrast to this trend, the number of international outsourcing, cross-border alliances, and project organizations has experienced rapid growth, leading to unprecedented changes in the international production system. The organizational form of vertical non-integration has increasingly become the primary model for enterprises (especially multinational corporations) to organize international production. Intermediate product trade and service trade in international trade have become increasingly important. Starting from the theory of the firm, this book studies the main models of corporate vertical non-integration, explores the reasons for its occurrence, examines its economic effects, elaborates on the competitive policy system of vertical non-integration, and argues for the future direction of China's manufacturing industry. The specific research content is as follows:
Chapter 1 summarizes the progress of research on the theory of the firm. Neoclassical economics views the firm as a production function, with the goal of maximizing profits. The contractual theory of the firm considers the firm as a series of linked contracts, a mechanism for replacing markets to reduce transaction costs. The resource-based theory of the firm views the firm as a social organization composed of heterogeneous resources, where these resources are the source of sustained competitive advantage. In evolutionary theory, the firm is seen as a system that implements a special balance between variation and selection mechanisms, forming the basis of organizational learning. The competitiveness theory of the firm argues that competitiveness arises from the interaction and integration of functional capabilities within the firm, with dynamic competitiveness being particularly significant for firms.
Chapter 2 explores the drivers of corporate vertical non-integration. Vertical non-integration refers to the separation of ownership of all vertically related business activities by the firm. In the process of vertical non-integration, firms increasingly purchase intermediate products from the market and outsource intermediate products and services, achieving their value chain through a network-based intermediate value chain governance model. Based on the theory of the firm, this chapter investigates the drivers of vertical non-integration.
Chapter 3 studies one of the main models of corporate vertical non-integration: outsourcing. From the perspective of evolutionary theory, it explores the reasons for outsourcing. From the cost analysis of outsourcing, it analyzes the steps firms must take to implement outsourcing. From the economic analysis framework of outsourcing's industrial characteristics, it examines corporate outsourcing strategic decision-making. From the relationship between outsourcing and information, outsourcing demonstrates clear advantages in information processing, thereby facilitating innovation.
Chapter 4 analyzes the second main model of corporate vertical non-integration: strategic alliances. Starting from the formation and mechanisms of strategic alliances, it elaborates on two different forms of strategic alliances: relational alliances and scale alliances. It analyzes the economic welfare effects of strategic alliances and summarizes their potential impact on foreign direct investment.
Chapter 5 explores the third main model of corporate vertical non-integration: project organizations. This chapter focuses on project organizations between firms, a new organizational form between the firm and market structure. Although project organizations are not new, they will attract increasing attention in the future as customer demand shifts toward heterogeneous and customized products.
Chapter 6 studies the economic effects of corporate vertical non-integration. The main effects of vertical non-integration include the formation of industrial clusters, the development of regional innovation systems, and the emergence of corporate social responsibility. Due to vertical non-integration, the international production system has undergone transformation, which in turn affects the export strategies of firms, regions, and countries, compelling them to recognize value chains. The transformation of the international production system has also led to uneven income distribution between nations, widening the international income gap.
Chapter 7 explores the historical evolution of competition policy and examines the similarities and differences between the competition policies of the United States and the European Union. It analyzes the future direction of competition policy—international coordination of competition policy—and summarizes the welfare effects of vertical non-integration competition policy.
Chapter 8 argues that China's manufacturing industry must adapt to the transformation of the international production system. By elaborating on China's position in the international production system, it is found that although China ranks among the world's leaders in manufacturing output, its position in the global value chain is not high. How can China improve its position in the global value chain? Through theoretical analysis and empirical research, it is concluded that only through the rapid development of domestic industrial clusters can China's manufacturing industry secure a place in the global value chain. Only by developing China's service industry can its manufacturing sector successfully adapt to the transformation of the international production system.