dasafy cheng's List: Management

• Vertical Integration and Corporate Strategy

• • Advantage: Market Power.
• Williamson and Ouchi (1981) have asserted that transaction cost minimizing outcomes result from the working out of competitive forces over an extended period.

  • Advantage: Low transaction costs
• There are three chief stages which will be considered: production; wholesale distribution; and retail.
• In the petrol sector, independent dealers are supplied under exclusive dealing contracts, known as “solus contracts”. These offer a discount off a schedule wholesale price in return for exclusivity.
• There are four types of relationship for wholesaler-owned sites in the petrol sector, in descending order of degree of control: direct management; commission agency, offering commission on sales only; licence; tenancy.
• controlling price movements at the retail level.
• barriers to entry
• mark-up problem

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• (1) vertical divestiture would not make the oil industry more competitive; and (2) vertical divestiture would raise oil costs and prices.^In short, breaking up the oil companies would have no economic benefit but a very real economic cost.^(MCW)

• Forward vertical integration was associated with lower transaction-related costs.
• benefits of vertical integration slightly outweighing its costs.
• vertically integrate depends on the type of production involved, the extent of transaction costs, the amount of specialized assets, the degree of market power at each stage of production, the separability of activities, and the amount of uncertainty concerning prices and costs.
• Perry, M. K. 1989. Vertical integration: Determinants and effects. In R. Schmalensee & R. D. Willig (Eds.), Handbook of industrial organization, vol. 1, 185-255. New York: Elsevier Science.

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• BP had climbed from being the fifth largest and least profitable of leading petroleum companies to the second largest and most profitable
• Its main activities include the exploration and production of crude oil and natural gas, manufacturing and marketing, and solar generation—activities that have earned it the nickname "Beyond Petroleum."

• The average level of operational vertical integration dropped between the early 1970s and the early 1990s.

• Short-term contracts are used to avoid supplier complacency.

• Its operations range from exploration/production and processing/refining of oil & natural gas to marketing of petroleum products. As the company is present in all stages of the supply chain, the costs are lower. This provides it with an advantage over its competitors,

  • Advantage: low cost
• Consolidation in the industry has resulted in the creation of large oil and energy players in the U.S. who can exercise great control over gasoline prices, further facilitated by high market shares.

  • Advantage: high markket share and control over price
• BP has the second largest oil reserves in the world;
• A continuous depletion of its existing reserves poses a major challenge for the company
• pgrade its technology in order to reduce the emission of greenhouse gases,
• As the company is vertically integrated and is able to control the entire supply chain, the operational efficiency of the company improves. Further, as BP has direct access to the end customer through its retail gas stations, it does not pay any commissions to intermediaries, which increases the profitability of the company.
• needs to upgrade its technology to meet environmental regulations related to the emission of greenhouse gases, SO2 and nitrogen oxides.
• The company also faces the risk posed by natural disasters. Hurricanes such as Katrina and Rita can destroy its infrastructure. Hence, the company is required to make provisions to protect its infrastructure from such calamities.

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• why certain industries chose to integrate
• Chandler (1962) and Williamson (1971) have regarded vertical integration as a crucial step in the creation and success of the large firm.

• Also examines the classic strategic implications of vertical integration and questions the necessity of remaining vertically integrated in today's markets.

• the upstream sector is often the basis for the activities of companies, various advantages are associated with the progression of integration, i.e. reliability of supplies, economies in transactions and economies of scale, controlling the added value, etc.
• For the period considered and for the companies as a whole, the correlation coefficient between upstream profits and downstream profits is negative. A company-by-company survey shows that the more companies are vertically integrated the more their results are anticorrelated.
• Companies with high sectoral risks succeed in limiting the volatility of their overall profit as the result of extensive vertical integration.
• three factors mainly act in favor of the stability of the profits of oil companies, i.e. the size of the firm, the geographic diversification of its activities, and its vertical integration. This last characteristic may make it possible to compensate for its relative weakness in the other fields. This economic type outlook should be linked to a more general preoccupation to reduce fluctuations and hence risks. Lastly, it can be seen that vertical integration seems to be especially well suited in a period of strong variations in crude-oil prices.

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• 坚持和促进纵向一体化的协调发展，已成为各大石油公司的共同选择。从目前世界最大的三家跨国石油公司的业务构成情况看，上、下游和化工业务占用资本的构成比例平均为51：32：13。大多数石油公司以石油天然气勘探开发为主，兼营原油运输、炼制、化工、电子、煤炭、冶金等。在产品结构上表现为上下游一体化，在产业结构方面呈现出多元化的特征。

• 国务院整合石油部门，成立了中石油、中石化和中海油3家公司，形成纵向分割。

• 中国石油注册资本1600亿元，是中国石化行业巨头之一，旗下拥有三星石化、石油龙昌、ST吉化、锦州石化、辽河油田等公司，2001年实现净利润468亿元。但从公司的业务构成来看，中石油的赢利主要依靠上游的石油勘探与生产业务，其他两项主营业务包括炼油与销售及化工与销售两项则均告亏损。
  　　对炼油与化工企业来说，近几年普遍业绩不好，利润已经向产业链的上游与下游转移，中国加入世贸组织后，将加剧国内炼化行业生产能力过剩的局面，炼化企业的生产前景将更加不容乐观。在这种情况下，炼化类企业将成为中石油重组的首要对象。

• 格林柯尔集团是全球第三大无氟制冷剂供应商，处于制冷行业的上游。收购下游的冰箱企业，既有利于发挥其制冷技术优势，同时也能直接面对更广大的消费群体。从2002年开始，格林柯尔先后收购了包括科龙、美菱等冰箱巨头在内的五家企业及生产线。通过这一系列的并购活动，格林柯尔已拥有 ９００万台的冰箱产能，居世界第二、亚洲第一，具备了打造国际制冷家电航母的基础。格林柯尔集团纵向产业链的构筑，大大提高了其自身的竞争能力和抗风险能力。