This presentation will explore this issue and determine if sustainability-focused companies tend to be more vertically integrated regardless of industry. There are several reasons why companies may prefer to purchase a product or service via the market: the nature of the product, organization cultures, macro economic factors and the instability of certain industries. The arguments above notwithstanding, there is literature that discusses the benefits of integration, particularly for sustainability-focused companies.
There appears to be the potential for tension for some companies that set out to pursue a sustainability-focused strategy. That is, while firm capabilities, firm culture, and industry dynamics may make outsourcing the preferred sourcing solution, there is dual pressure to vertically integrate simply as a result of pursuit of a sustainability-focused strategy. As an empirical study, vertical integration level of 116 sustainability-focused companies in US Dow Jones Sustainability Index will be analyzed. Unlike previous studies that employed surveys, we use objective economic data and employ the measurement method of Fan and Lang (2000), which is a widely used and accepted index in recent literature. Fan and Lang use the sales of companies in primary and secondary industries and benchmark input-output tables. We utilize the Compustat database to collect the sales information of companies. The Bureau of Economic Analysis publishes the input-output tables every five years. We use the 2002 input-output table, which is the most recently published table at the six digit NAICS code level. Following Fan and Lang (2002), we also analyze the relationship between the integration level and their industry types to provide insight regarding the make-buy decision for sustainability-focused companies versus their counterparts pursuing other strategies.
Author(s)Learn more at:Integration Decisions of Sustainability-Focused Companies