2. Vertical integration is a kind of strategic planning, a form of expanding the core competence of an enterprise's internal organization, which is juxtaposed with horizontal integration strategy and strengthening strategy.
3. Vertical integration, also known as vertical integration, refers to the strategic form that enterprises combine production with raw material supply or production with product sales. It is a development strategy for an enterprise to expand its existing business in two possible directions, and a strategic system for expanding the company's business activities backward to raw material supply or forward to sales terminals.
4. It includes backward integration strategy and forward integration strategy, that is, deepening strategy in business field.
5. Forward integration strategy means that enterprises will further process their own products, or make comprehensive use of resources, or companies will set up their own sales organizations to sell their own products or services.
6. For example, iron and steel enterprises roll all kinds of profiles themselves to make all kinds of final products, which belongs to forward integration.
7. Backward integration refers to the enterprise's own supply of all or part of raw materials or semi-finished products needed to produce existing products or services, such as iron and steel companies having their own mines and coking facilities; Textile mills spin and clean their own yarns.
8. The purpose of vertical integration is to strengthen the control of core enterprises over the whole process of raw material supply, product manufacturing, distribution and sales, so that enterprises can take the initiative in market competition, thereby increasing profits at all stages of business activities.
9. Further thinking on the case of vertical integration between GM and Fisher 2008-02-29 23:59 Transaction cost economics believes that the increase of enterprise-specific investment will increase the transaction cost of related markets, thus increasing the possibility of vertical integration.
10, and the most classic case of vertical integration research is the merger of General Motors and Fisher Body Company.
1 1, for the convenience of analysis, here is a brief review of this process.
12, 19 19 years, General Motors signed a 10 year agreement with Fisher Company to provide closed body.
13. It is stipulated in the agreement that all closed car bodies required by GM must be purchased from Fisher Company, and the supply price is cost plus 17.6% profit (the cost does not include the capital interest of the investment). At the same time, the price change range of the car body given to GM shall not exceed the price change range of similar car bodies given by Fisher Company to other car manufacturers, nor shall it exceed the market average price of similar car bodies produced by companies other than Fisher Company.
14. The main purpose of this contractual arrangement is to encourage exclusive investment by Fisher's main company and prevent opportunistic behaviors of both parties. Unfortunately, however, this situation still happened.
15. Because the price change mainly comes from cost, Fisher Company adopts highly labor-intensive technology and refuses to build the car body production factory near the assembly plant adjacent to General Motors. This arrangement is beneficial to Fisher Company, because the car body price is equal to the company's variable cost plus 17.6% profit rate, that is, Fisher Company's labor and transportation cost plus 17.6% profit rate.
16. In the end, GM couldn't bear it, bought the remaining shares of Fisher Company, and finally annexed Fisher Company with 1962.
17, Coase believes that through vertical integration, a series of contracts are replaced by one contract, thus reducing the signing costs related to the formulation and implementation of contracts, and because the operation of the market has costs, if entrepreneurs are allowed to control resources, part of the market operating costs can be saved.
18. Obviously, Coase regards the signing cost as an important transaction cost here. However, in the case of the merger of GM and Fisher Body Company, the number of contracts reduced is not obvious.
19. When Fisher Institution was an independent enterprise, all employees of the enterprise had to sign contracts with Fisher Brothers. After the merger, employees signed a contract with GM, plus the contract between GM and Fisher Brothers. Therefore, it can be said that the number of contracts has not changed much before and after the merger. Obviously, the signing cost is not the main component of the transaction cost.
20. The reason why GM wants to merge Fisher Body Company is obviously for its profit. As for Fisher Body Company, if it can gain more profits by remaining independent, it will not accept the merger, so it can be concluded that Fisher Body Company has at least not suffered losses due to this merger.
2 1. There is no evidence that the management level of GM is significantly higher than that of Fisher Body Company, and their human capital is also guided by entrepreneurs.
22. In view of the fact that the signing cost is basically unchanged and the productivity has not changed significantly, the merger can be implemented again, so where does the income from the merger come from? How to distribute the income generated by the merger? In this regard, Klein's answer is that the transaction cost saved by vertical integration is not mainly from the signing cost of making a contract emphasized by Coase, but from the cost related to the rip-off induced by the contract.
23. Because specific investment may induce rip-offs, vertical integration changes the ownership of enterprise organizational assets and creates a certain degree of flexibility, thus avoiding the possibility of rip-offs under incomplete contracts and rent dissipation during negotiations and renegotiations under incomplete contracts, thus significantly saving transaction costs.
24. At the same time, through vertical integration, the rip-off problem of human capital can also be solved.
25. Because of vertical integration, Fisher Brothers not only became employees of General Motors, but also took all employees of Fisher Body under its banner.
26. By acquiring the organizational ownership of Fisher Company, including all the words in the organization, the labor contracts of the production workers and all the knowledge about how to manufacture the car body, GM changed from buying the car body to manufacturing the car body.
27. Because the owner of the enterprise can own the human capital of the enterprise in the sense of owning a series of interdependent labor contracts and the enterprise-specific knowledge of the employee team embodied by the organization.
28 ..... After this transfer of power, the fundamental reason why the problem of cheating customers no longer occurs is that as an economic entity, the number of employees is huge, it is difficult to reach a plan, and it is impossible for all employees to desert or leave their jobs at the same time. Therefore, vertical integration in large-scale team organizations means that the ownership of human capital is very close to that of material capital.
29. This insight is undoubtedly profound. However, from an individualistic point of view, who is the rip-off? According to the contract theory of enterprise, enterprise is a kind of legal fiction, which is the connection of a series of contracts, and the enterprise itself has no thoughts and motives. So if there is a rip-off motive or behavior, who is ripping off in this case? This is a question that Klein didn't answer.
30. In addition, given that human capital only exists in its carrier, is it rigorous to judge the specificity of vertical integration to solve human capital? An enterprise is nothing more than a contract between human capital and non-human capital, and the people who own these capitals are obviously human capital owners and non-human capital owners. Therefore, the real possibility of being ripped off may be the owner of human capital or the owner of non-human capital.
3 1. In this case, Fisher Company is considered as the main rip-off, so we will focus on Fisher Company's human capital owners and non-human capital owners.
32. Firstly, the problem of human capital extraction after vertical integration is analyzed.
33. Because of the characteristics of general human capital, its market value is relatively fixed, and the remuneration of general human capital should not be affected before and after the merger, so we focus on analyzing specific human capital.
34. If a specific human capital pays a certain amount of labor before the merger and gets the same reward, then two things may happen after the merger.
35. First, the reward is reduced. Because specific human capital can only create greater value when trading with specific trading partners, and this specific human capital will depreciate sharply in other places, it can be concluded that GM has the impulse to reduce the reward of specific human capital.
36. However, due to the initiative characteristics of human capital and the irreplaceable characteristics of specific human capital, specific human capital can use laziness to counter the rip-off of GM after reducing its remuneration, thus forcing the company to increase its payment.
37. From another point of view, if GM can implement a rip-off strategy for employees of Fisher Body Company with specific human capital, and Fisher Company can still implement a similar strategy when it is independent, then it is not feasible for GM to implement a rip-off strategy different from Fisher Body Company for owners with specific human capital after the merger (due to limited materials, we cannot know whether Fisher Body Company has ripped off employees when it is independent, and it is not a common concern for Fisher Body Company to rip off employees, so this is not true.
38. The second is to ask for higher remuneration, which is still difficult to happen, because asking for too high remuneration may lead the company to abandon it, thus making the specific human capital worthless. Therefore, certain human capital will resist the impulse of asking for exorbitant prices and choose to continue to cooperate with the new company.
39. That is to say, before and after the merger, the behavior and salary of employees of Fisher Body Company will remain basically unchanged.
40. In addition, in order to maintain the stability of the workforce, as most merger cases show, GM may increase the salaries of important members with dedicated human capital.
4 1. Therefore, the rip-off of human capital is not the main reason for the merger of GM and Fisher Company. If human capital is suspected of being ripped off, there should not be much improvement before and after the merger. If it can be improved, Fisher Company will be solved if it becomes independent.
42. There is no evidence that GM is better than Fisher in solving the problem of human capital rip-off.
In addition, Klein's judgment that vertical integration in large team organizations means that human capital is close to non-human capital is somewhat arbitrary.
44. The characteristics of human capital and non-human capital are very different, which leads to their different governance methods.
45. In this case, as long as the labor intensity and remuneration of other employees except the Fisher brothers are basically the same before and after the merger, it doesn't matter who directs them; At the same time, the professional knowledge gained by these employees in long-term cooperation can only be brought into play in the merged company, and only when professional human capital is put into use can they create benefits and gain benefits, which is the most fundamental reason why most employees of Fisher Company still choose to stay.
46. Then analyze the non-human capital owners.
47. Because the salary of human capital owners is basically unchanged before and after the merger, the benefits brought by the rip-off before the merger can only be owned by non-human capital owners.
48. Indeed, after the contract remuneration of employees is guaranteed, any income of opponents will be owned by non-human capital owners.
49. In other words, the real rip-off is the non-human capital owner of Fisher Body Company.
50. From the above analysis, we can draw a conclusion that vertical integration only solves the possible rip-off problem among non-human capital owners.
5 1. For human capital, because human capital only exists in the carrier (we temporarily put aside the ownership of human capital), it can't enter the enterprise through vertical integration, and simple vertical integration can't solve the rip-off problem of human capital.
52, or if there is only vertical integration without other special measures for human capital, the problem of human capital rip-off will not be improved (as for the specific governance mechanism of human capital, it will be discussed in another article).
53. At the same time, as non-human capital is a passive asset, it can't create value when the enterprise already exists. Only by combining it with active human capital can it create value. Although modern enterprise theory also recognizes the importance of human capital, it does not put it at its due height. When analyzing enterprises, non-human capital is still the main body. Because of this cognitive error, we lack a deeper understanding of the enterprise.
54. In practice, the theory of taking non-human capital as the main body to understand the right and wrong of enterprises also misleads the public's sight, thus making the operation of enterprises less efficient.