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We examine the evolution of vertical specialization in three industries: chemicals, computers, and semiconductors. Vertical specialization is the restructuring of industry-wide value chains, such that different stages are controlled by different firms, rather than being vertically integrated within the boundaries of individual firms. In some cases, vertical specialization may span international boundaries and is associated with complex international production networks. After decades of vertical specialization, firms in the chemical industry are re-integrating stages of the value chain. By contrast, the semiconductor and computer industries have experienced significant vertical specialization during the past ten years. We examine how and why these contrasting trends in vertical specialization have co-evolved with industry maturation and decline, and underscore the importance and role of both industry factors and business strategies necessary for industries to become more specialized. We also consider the effects of vertical specialization on the sources of innovation and the geographic redistribution of production and other activities. We conclude that the evolution of vertical specialization in these three industries has both reflected and influenced the strategies of leading firms, while also displays industry-specific characteristics that are rooted in different technological and market characteristics.

We investigate the competitive consequence of vertical integration on organizational performance using a comprehensive dataset of U.S. motion picture production companies, which includes information on their vertical scope and competitive overlaps. Vertical integration appears to change the dynamics of competition in two ways: (i) it buffers the vertically integrated firms from environmental dependence and (ii) it intensifies competition among non-integrated organizations. In contrast to the existing literature, our results suggest that vertical integration has implications well beyond both the level of the individual transaction and even the internal efficiency of the integrated firm.

Social Entrepreneurship, Organizational Behavior.

This case is suitable to be used in advanced undergraduate and MBA/MSc level.

This case teaches about green organization, its opportunity, challenges, and attitude toward sustainable agriculture. The Babylon Vertical Farms (BVF) is an agricultural and technological company that grew high-quality hydroponic vegetables and herbs with minimum use of sunlight, soil, and pesticides. BVF used recycled water through reverse osmosis process with the target to decrease cultivated time to less than six hours, when compared to the typical 18 hours, apart from minimizing water usage up to 90%. Knowing its potential, Stuart Thomas, the founder and his team planned to increase the farm production to 2,000–3,000 kg a month from 1,000 kg a month. The farm required RM150,000 to acquire resources and to extend its farm infrastructure. Stuart and his team had to make feasible and practical decision in gaining their funds to execute the business to be one that is sustainable and green. As a social entrepreneur, Stuart also wanted to address poverty-related hunger. A group of investors was ready to invest and asked for 30% equity. Stuart was tempted to take the offer. If he rejected the offer, the farm could lose the opportunity to scale-up its operation. At the same time, if he accepted the offer, he might lose control over the business one day.

The learning outcomes are as follows:

• to expose students to the various forms of urban farming that a social entrepreneur can venture into;

• to expose students to the benefits of green business;

• to evaluate potential opportunities and threats of a green organization using SWOT analysis; and

• to recommend a possible strategy to build a sustainable agriculture farm that is economically viable, environmentally sound, and socially responsible.

to expose students to the various forms of urban farming that a social entrepreneur can venture into;

to expose students to the benefits of green business;

to evaluate potential opportunities and threats of a green organization using SWOT analysis; and

to recommend a possible strategy to build a sustainable agriculture farm that is economically viable, environmentally sound, and socially responsible.

Declining productivity and disappointing lack of profitability after three decades of biotechnology commercialization, despite enormous investment and the great promise of breakthrough solutions, have led researchers to question whether traditional horizontal acquisition strategies result in superior firm performance. Our chapter explores the answer to this question as well as to the role that disclosure plays in this important emerging industry. Using standard event study methodology, we examine differences in market performance of vertical versus horizontal acquisition strategies, along with the role played by the amount of information disclosed in the announcement. Our results suggest that vertical acquisitions underperform horizontal acquisitions, with the amount of disclosure playing a role in the market's ability to react to a firm's acquisition strategy accurately and quickly. Our results suggest that accountants who have called for additional disclosure, especially in complex industries such as biopharma, are correct in assuming that nonfinancial information plays a significant role in investors’ valuation of an acquisition event. Managers of biopharma firms, however, are cautioned that more disclosure, through the reduction of uncertainty, may result in lower market valuations for acquirers.

The chapter aims to bring out the dynamic nature or hierarchy in organizations and presents a conceptual framework for making sense of hierarchy in contemporary work. We describe hierarchy as the result of a contradictory dynamic that incorporates both vertical and horizontal practices of organizing. The vertical practice, verticalization, draws on and reproduces the formal organization, whereas the horizontal practice, horizontalization, orders people on the basis of their knowledge and initiatives. The dynamic between these two practices varies, we argue, depending on the social and epistemic distance of formal managers' from the operative work process. Three different dynamics between verticalization and horizontalization – loose coupling, translation, and integration – are identified and illustrated, drawing on three ethnographically inspired studies of knowledge work. Through these three dynamics, the chapter casts light on and provides nuances to the current discussion in the literature on postbureaucracy.

This chapter investigates the structure of a simple vertical competition model by exhibiting the competitive links among assemblers, component producers, and integrated firms in a generalization of Cournot's model of the vertical integration by allowing any degree of competition among cohorts. Vertical integration in the model can take place by vertical mergers, forward or backward integration. Vertical integration is highly profitable and always reduces the price of the final product. The cost-raising strategy of an integrated firm buying out unneeded component producers is profitable and detrimental to consumers only if the firm faces no competition from other integrated firms.

This chapter examines the oil and gas industry and the efficacy of vertical integration strategies. Using multiple theoretical lenses ranging from the resource-based view, transactions costs, and parenting perspective, the chapter considers different arguments associated with vertical integration. The 2011 breakup of ConocoPhillips and its global value chain helps address the question of which strategy is best – integrated or nonintegrated. We provide several conclusions about the structure of integration and value chains within the oil and gas industry. First, vertical integration based on the physical transfer of products between value chain activities will generate little firm advantage in the form of classical integration benefits, such as control over input quality or speed to market. Second, competing across the industry value chain as a hedge or strategy against industry cyclicality is not theoretically defensible. Third, pure play industry specialists can create value through management focus, agility, and, transparency for investors. Fourth, firms that compete across a wide range of industry value chain activities can create value-adding corporate strategies if they are able to leverage knowledge and assets across different industry sectors.

This article classifies empirical research on vertical integration under four approaches – value-added-to-sales, qualitative–quantitative, input–output, and microanalytic. The emphasis here is on the microanalytic approach which has accumulated the most systematic evidence to support its theoretical propositions. In particular, this article emphasizes theoretical and empirical contributions from organizational economics (especially transaction costs and agency theories) for both vertical integration and (vertical) contracting. Limitations and methodological challenges concerning the empirical testing of theories of vertical integration are addressed and suggestions for further research are provided.

Global trading of oil and gas means international markets are more open than at any previous time. As a result, the oil industry oligopoly is being deconstructed and vertically integrated MNCs are being reconstituted to address this fact. In parallel, emergent MNCs in the form of National Oil Companies are now entering the competitive arena. Traditionally dominant MNCs are adopting new operating models focused on technological and financial strength. We examine changes in the once-dominant industry paradigm of vertical integration using several theoretical lenses. These include transaction-cost economics, the resource-based view and institution theory. The giant MNCs operated globally for decades and are an important variant of the MNCs studied in strategic management literature. We suggest the current theoretical models do not explain sufficiently how these MNCs respond to current changes and by using industry observation we contribute to modernization of this literature.

Purpose – This study focuses on the relationship between local governments and public sector joint ventures (JVs). Public sector JVs are separate administrative entities that undertake public service activities on behalf of local governments. The aim of this study is to examine the vertical management control packages that are used by local governments to control the relationship with their public sector JVs.

Design/methodology/approach – Two case studies have been conducted in two public sector JVs, owned jointly by more than 20 local governments. The analysis of the two cases is informed by an integrated conceptual framework describing how transactional and relational factors influence control, trust, and risk in the context of public sector JVs.

Findings – The case studies provide a nuanced understanding of the interplay between the vertical management control packages, trust between the parents and the public sector JVs, and risks as perceived by the local governments. The case findings not only reveal how local governments struggle with adequate outcome control but also highlight how and why they rely on behavioral control. A related finding is that while the probability of poor business performance does not have a significant impact on the design of the vertical control packages, the social impact of failure has the potential to create a sense of urgency with regard to changes in the design of vertical management control packages.

Originality/value – This study adds to the literature on interorganizational relationships by providing insight into the use of vertical management control packages in the specific, but relevant, setting of public sector JVs.