Total views : 319

Quantitative Methods for Assessing Levels of Vertical Integration as a basis for Determining the Economic and Organizational Sustainability of an Industrial Corporation


  • National Mineral Resources University, St. Petersburg, Russian Federation


Background/Objectives: The article is aimed at assessing qualitative and quantitative methods for measuring the vertical integration impact occurring when the intermediate stages of production are united within one company in an effort to enhance the firm's economic and institutional sustainability. Methods: The authors have applied quantitative analysis to assess the group's vertical integration level based on the method of the production and sales break-even volume. Qualitative methods of the analysis were used for interpretation of the obtained results and estimates. Findings: An effective method for qualitative assessment of integration has been proposed that involves the following steps: determining the types of companies and their interactions; determining the conditions of organizational sustainability within the integrated company; assessing the economic sustainability of each company; assessing the concentration of raw materials suppliers and buyers of intermediate products in the markets; analyzing the companies' specific assets; assessing the diversification of the integrated company; and assessing the impact of changes in the external environment. The method was tested on an industrial holding company and demonstrated good results. Within the framework of interaction between two companies in the group, four conditions of sustainability have been outlined on the basis of the break-even point, and the conditions of comprehensive sustainability have been determined for both companies, as well as conditions insufficient for sustainability. Additional factors regarding institutional and economic sustainability of the group have been identified for the purpose of further research. Applications/Improvements: The developed method allows making conclusions about preservation or destruction of the companies in a group in the future.


Economic Interests, Integration, Interaction, Institutional Sustainability, Vertical Integration JEL Codes: D43, L11, L65.

Full Text:

 |  (PDF views: 244)


  • Bain JS. Industrial Organization. 2nd ed. New York: Wiley; 1968.
  • Hay D, Morris D. Industrial Economics and Organization: Theory and Evidence. Oxford University Press; 1999. p. 2127-204.
  • Scherer FM, Ross D. Industrial Market Structure and Economic Performance. Boston, MA: Houghton Mifflin; 1997.
  • Chatterjee S. Gains in vertical acquisitions and market power: Theory and evidence. Academy of Management Journal. 1991; 34(2):436-48.
  • Aghion P, Bolton P. Contracts as barrier to entry. American Economic Review. 1988; 77(3):388-401.
  • Salop SC, Scheffman DT. Cost-raising strategies. Journal of Industrial Economics. 1987; 36(1):19-34.
  • Hart O, Tirole J. Vertical integration and market foreclosure. Brookings Paperson Economic Activity. 1990. 205-86.
  • Williamson OE. The Economic Institutions of Capitalism. Firms, Markets and Relational Contracting. New York; 1985.
  • Cheung S. The contractual nature of the firm. Journal of Law and Economics. 1983 Apr; 26:1-21.
  • Alchian A, Demsetz H. Production, information costs, and economic organization. American Economic Review. 1972; 62:777-95.
  • Coase RH. The firm, the market and the law. University of Chicago Press; 1990.
  • North DC. Institutions, Institutional Changes and Economic Performance. Cambridge: Cambridge University Press; 1990.
  • Langlois RN. Business groups and the natural state. Journal of Economic Behavior and Organization. 2013; 88:14-26.
  • Jeggertsson T. Economic behavior and institutions. Cambridge University Press; 2001.
  • Richter C, Lindstadt H. Explaining organizational boundaries with complexity and dynamics. Problems and Perspectives in Management. 2004; 4:192-200.
  • Itoh H, Morita H. Formal contracts, relational contracts, and the threat-point effect. CESifo Working Paper Series 3533. 2011. Available from: portal/pls/portal/docs/1/1208016.pdf
  • Barney JB. Firm resources and sustainable competitive advantage. Journal of Management. 1991; 17:99-120.
  • Grant RM. Contemporary strategy analysis. 7th ed. Wiley; 2011.
  • Rumelt RP. Strategy in a structural break. McKinsey Quarterly. 2009; 1:35-42.
  • Wernerfelt B. A resource-based view of the firm. Strategic Management Journal. 1984; 5(2): 171-80.
  • Hart S. A natural-resource-based view of the firm. Management Review. 1995; 20(4):986-1014.
  • Rumelt RP, Schendel D, Teece DJ. Strategic management and economics. Strategic Management Journal. 1991; 12(5):5-29.
  • Gomes-Casseres B. Competitive advantage in alliance constellations. Strategic Organization. 2003; 1(3):327-35.
  • Dannikov VV. Holdings at Oil and Gas Business: Strategy and Management. Moscow: Jelvojs-M; 2004.
  • Porter ME. Competitive strategy: Techniques for analyzing industries and competitors. New York: Free Press; 1998.
  • Kaplinsky R. Globalization and unequalization: what can be learned from value chain analysis. Journal of Development Studies. 2000; 37(2):117-46.
  • Antras P, Davin C. Organizing the global value chain. Econometrica. 2013 Nov; 81(6):2127–204.
  • Teece DJ. Vertical integration and vertical divestiture in the US Oil Industry: Analysis and policy implications. Stanford: Stanford University Institute for Energy Studies; 1976.
  • Whyte G. The role of asset specificity in the vertical integration decision. Journal of Economic Behavior and Organization. 1994; 23(3):287-302.
  • Merges and take-overs: the most successful and unsuccessful transactions. 2016. Available from: articles/37357-sliyaniya-i-pogloshcheniya-samye-dorogie- i-neudachnye-sdelki-ma
  • Mosaic Company. 2016.
  • Potash Corp Company. 2016. Available from: http://www.
  • CF Industries Holdings, Inc. 2016. Available from: https://
  • Agrium Inc. 2016. Available from:
  • Yara. 2016. Available from: Date accessed: 23/03/
  • S. A. OCP. 2016. Available from:
  • ICL. 2016. Available from:
  • Uralkali. 2016. Available from:
  • K+S AKTIENGESELLSCHAFT. 2016. Available from:
  • EuroChem Group AG. 2016. Available from: http://www.


  • There are currently no refbacks.

Creative Commons License
This work is licensed under a Creative Commons Attribution 3.0 License.