Indian Journal of Science and Technology
Year: 2016, Volume: 9, Issue: 20, Pages: 1-14
Tatyana Ponomarenko* and Igor Sergeev
*Author for correspondence
National Mineral Resources University, St. Petersburg, Russia;
Email: [email protected]
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.
Keywords: Economic Interests, Integration, Interaction, Institutional Sustainability, Vertical Integration JEL Codes: D43, L11, L65.
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