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86-702: Idemitsu is the second largest petroleum refiner in Japan, after Eneos . It was ranked as the 262nd largest company in the world by revenue in Fortune Global 500 (2008). It is number 26 in petroleum refining. Idemitsu Kosan is listed in the First Section of the Tokyo Stock Exchange and, since absorbing Showa Shell Sekiyu in 2019, is a constituent of the Nikkei 225 index; however, it is not

172-686: A 32.73% stake in Global OLED Technology LLC in June 2010. For $ 100 million, LG purchased Kodak 's organic light emitting diode business in December 2009 and created Global OLED Technology to administer and develop a portfolio of 2,200 patents based on Kodak research. Eneos Eneos Corporation ( ENEOS株式会社 , ENEOSU kabushiki gaisha ) , formerly JXTG Nippon Oil & Energy Corporation ( JXTGエネルギー株式会社 , JXTG Enerugī Kabushiki-gaisha ) , or NOC or Shin-Nisseki (新日石)

258-508: A Canadian oil sands mining company, through its fully owned subsidiary Mocal Energy. The company also has technical collaboration with Tide Water Oil Co., an Indian petroleum products manufacturer. Superior quality lubricants under the brand name ENEOS are manufactured and marketed in India by Tide Water Oil Co. On 11 March 2011, a 145,000-barrel-per-day refinery in Sendai was set ablaze by

344-634: A constituent of the TOPIX 100 index (instead, it is a constituent of the TOPIX Mid400 index). Sazō Idemitsu founded Idemitsu & Co. ( 出光商会 , Idemitsu Shōkai ) in 1911, selling lubricant oil for Nippon Oil in Moji , northern Kyushu . He expanded to selling fuel oil for fishing boats in Shimonoseki . After success in Japan, Idemitsu & Co. expanded to Manchuria (China) in 1914 where

430-490: A factor in determining whether vertical integration is successful. There are many problems and benefits that vertical integration brings to an economic system . Problems that can stem from vertical integration can include large capital investments needed to set up and buy factories and maintain efficient profits. Rapid technology development can increase integration difficulties and further increase costs. The requirement of different business skills venturing into new portions of

516-565: A few days previously that were kept in ice remained in perfect condition. In 1924, Clarence Birdseye patented the "Birdseye Plate Froster" and established the General Seafood Corporation. In 1929, Birdseye's company and the patent were bought by Postum Cereals and Goldman Sachs Trading Corporation . It was later known as General Foods . They kept the Birdseye name, which was split into two words (Birds eye) for use as

602-403: A large share of farm receipts, formerly assumed to go to the operator's family". Under production contracts, growers raise animals owned by integrators. Farm contracts contain detailed conditions for growers, who are paid based on how efficiently they use feed, provided by the integrator, to raise the animals. The contract dictates how to construct the facilities, how to feed, house, and medicate

688-583: A lubricant factory in the United States. Oil industry deregulation took big leaps with the abolishment of the Special Petroleum Law and self-service pumps became legal. Toward the end of the 1990s, the demand in Japan decreased due to the long economic crisis . The oil industry was too large and many companies merged. At the turn of the century, Idemitsu Kosan was the only major oil refining company in Japan that had not merged. The company

774-452: A major retailer, and Essendant , a dominant wholesaler. Before a wave of deregulation at the end of 20th century, most electric utilities were vertically integrated and provided electric generation , transmission , distribution , and sales. These were not just conglomerates with a common accounting department: there was just one profit center in sales, and costs of transmission and distribution were not separated. Partial deregulation in

860-473: A portion of the syndication revenues in order for a show to gain a spot on the schedule if it was produced by a studio without common ownership. In response, the studios fundamentally changed the way they made movies and did business. Lacking the financial resources and contract talent they once controlled, the studios now relied on independent producers supplying some portion of the budget in exchange for distribution rights. Certain media conglomerates may, in

946-809: A similar manner, own television broadcasters (either over-the-air or on cable), production companies that produce content for their networks, and also own the services that distribute their content to viewers (such as television and internet service providers). AT&T , Bell Canada , Comcast , Sky plc , and Rogers Communications are vertically integrated in such a manner—operating media subsidiaries (such as WarnerMedia , Bell Media , NBCUniversal , and Rogers Media ), and provide " triple play " services of television, internet, and phone service in some markets (such as Bell Satellite TV / Bell Internet , Rogers Cable , Xfinity , and Sky's satellite TV and internet services). Additionally, Bell and Rogers own wireless providers, Bell Mobility and Rogers Wireless , while Comcast

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1032-497: A slower information processing rate, with the side effect of making the company so slow that it could not react quickly. Birds Eye did not take advantage of the growth of supermarkets until ten years after the competition did. The already-developed infrastructure did not allow Birdseye to quickly react to market changes. In order to increase profits and gain more market share, Alibaba , a China-based company, has implemented vertical integration deepening its company holdings to more than

1118-505: A supply chain. Operational routines also become more consistent and certain as the management of these firms gradually merge. Vertically integrated firms rarely need to worry about the sufficiency in their supply of materials because they generally control the facilities that provide them. A vertically integrated company also creates high barriers of entry into their respective economy, eliminating most potential competition. Implementing vertical integration can be beneficial in that it reduces

1204-451: A system in which mass production was most efficient. The model called for the manufacture of additional devices, all of which had carefully-curated designs by Ford engineers. Instead of passing these instructions and duties off to external manufacture firms, vertical integration was exercised within the corporation. This allowed for manageable division of labor, decreased costs in delay and exchange of goods, and organized updates of each firm in

1290-416: A trademark. Birdseye was paid $ 20 million for the patents and $ 2 million for the assets. Birds Eye was one of the pioneers in the frozen food industry. During these times, there was not a well-developed infrastructure to produce and sell frozen foods. Hence Birds Eye developed its own system by using vertical integration. Members of the supply chain, such as farmers and small food retailers, could not afford

1376-501: A variety of basic chemicals supplied to chemical industries, in Japan and abroad. In Europe it markets through Idemitsu Chemicals Europe PLC. Basic chemicals produced includes olefins such as ethylene and propylene , and aromatics like benzene , para-xylene and styrene monomer. It is also a supplier of plastics for uses such as CD pressing and circuit boards . The two naphtha crackers can produce up to 997,000 tonnes of ethylene per year. Lubricants , Idemitsu's first product

1462-468: A vertically integrated strategy has helped Apple become a leading platform company; integrating their software (through APIs for third-party application developers) with their own hardware, across all the devices and services they offer. Vertical integration allows Apple to control production from beginning to end. Other companies may follow the Apple model, but may not see success for some time, both due to

1548-701: Is Idemitsus stake in Norwegian oil fields in the North Sea ( North Sea oil ). The first and largest Snorre oil field has been followed by several more. In the Sea of Japan , Idemitsu has oil platforms in Niigata prefecture near Aga and Iwafune , but the production is small. There are exploration projects in Vietnam , Thailand and Cambodia . In Vietnam, the exploration is together with Russian Zarubezhneft and

1634-535: Is a Japanese petroleum company. Its businesses include exploration, importation, and refining of crude oil; the manufacture and sale of petroleum products, including fuels and lubricants; and other energy-related activities. It is the largest oil company in Japan, and in recent years it has been expanding its operations in other countries. Its products are sold under the ENEOS brand, which is also used for service stations. It also previously operated service stations under

1720-533: Is a form of vertical integration when purchasing departments take over the former role of wholesalers to source products. For vertical integration to succeed, managers must be able to adapt their managerial approach to compliment the changes in functional activities that their vertical shift accompanies. Managers should make sure that their firm can take advantage of existing functional knowledge through organisation, and simultaneously allow new functional knowledge to develop. However, environmental possibilities can be

1806-465: Is a major area. It also produces fluorescent materials for OLED displays. A joint venture with German company BASF , BASF Idemitsu Co. Ltd., produces 1,4-Butanediol for the Japanese market at Idemitsu's Chiba plant. Idemitsu also produces some medical drugs. Following a 2009 cross-licensing agreement between LG Display Co., Ltd. and Idemitsu Kosan's OLED materials business, Idemitsu Kosan purchased

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1892-458: Is a more efficient business with lower costs and more profits. On the undesirable side, when vertical expansion leads toward monopolistic control of a product or service then regulative action may be required to rectify anti-competitive behavior. Related to vertical expansion is lateral expansion , which is the growth of a business enterprise through the acquisition of similar firms, in the hope of achieving economies of scale . Vertical expansion

1978-432: Is also known as a vertical acquisition. Vertical expansion or acquisitions can also be used to increase sales and to gain market power. The acquisition of DirecTV by News Corporation is an example of forwarding vertical expansion or acquisition. DirecTV is a satellite TV company through which News Corporation can distribute more of its media content: news, movies, and television shows. The acquisition of NBC by Comcast

2064-459: Is an arrangement in which the supply chain of a company is integrated and owned by that company. Usually each member of the supply chain produces a different product or (market-specific) service, and the products combine to satisfy a common need. It contrasts with horizontal integration , wherein a company produces several items that are related to one another. Vertical integration has also described management styles that bring large portions of

2150-449: Is an example of an industry in which without vertical integration, would not be able to develop efficiently. In order to implement a telecommunications system that connected cities across a nation reliably, vertical integration was called upon. This strategic move ensured that the wiring, manufacture, and management of the system was consistent and functional across a state. Apple has used the vertical integration strategy for 35 years and

2236-776: Is an example of backward vertical integration. For example, in the United States, protecting the public from communications monopolies that can be built in this way is one of the missions of the Federal Communications Commission . Scholars' findings suggest that a reduction in inefficiencies caused by the market vertical value chains, including downstream prices or double mark-up, can be negated with vertical integration. Application in more complex environments can help firms overcome market failures (markets with high transaction costs or assets specificities) Scholars also identified potential risks and boundaries which may occur under vertical integration. This includes

2322-473: Is one method of avoiding the hold-up problem . A monopoly produced through vertical integration is called a vertical monopoly : vertical in a supply chain measures a firm's distance from the final consumers; for example, a firm that sells directly to the consumers has a vertical position of 0, a firm that supplies to this firm has a vertical position of 1, and so on. Vertical integration is often closely associated with vertical expansion which, in economics ,

2408-587: Is one of the most successful companies in the technology industry. Apple centered its business strategy on its own development of integrated hardware, software, and latterly services. They design most of their products in-house, and do not allow their hardware and operating system to be licensed out, which allows the company to apply its company vision to its products. Large companies such as Apple are more likely than smaller companies to employ vertical integration, as they have more resources to manage each stage of production (e.g. major expansion and funding). Implementing

2494-402: Is partnered with Verizon Wireless for an Xfinity-branded MVNO . Similarly, Sony has media holdings through its Sony Pictures division, including film and television content, as well as television channels, but is also a manufacturer of consumer electronics that can be used to play content from itself and others, including televisions, phones, and PlayStation video game consoles. AT&T

2580-402: Is removed and a corporation has the power to control all firms in its supply chain. One benefit is that the implementation of vertical integration can yield increased profit margins or eliminate the leverage that other firms or buyers may have over the firm. It allows improved coordination between production and distribution firms and decreases the cost of exchange of goods between firms within

2666-481: Is the first ever vertical integration where a mobile phone company and a film studio company are under same umbrella. Vertical integration through production and marketing contracts have also become the dominant model for livestock production. Currently, 90% of poultry, 69% of hogs, and 29% of cattle are contractually produced through vertical integration. The USDA supports vertical integration because it has increased food productivity. However, "... contractors receive

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2752-491: Is the growth of a business enterprise through the acquisition of companies that produce the intermediate goods needed by the business or help market and distribute its product. A firm may desire such expansion to secure the supplies needed by the firm to produce its product and the market needed to sell the product. Such expansion can become undesirable from a system-wide perspective when it becomes anti-competitive and impede free competition in an open marketplace. The result

2838-468: The Bell System , Apple , the U.S. entertainment studios, the U.S. meat industry, Ford Motor Company , CVS , and Amazon demonstrate vertical merging. Other examples like Alibaba and EssilorLuxottica cover vertical integration in other nations. During a hunting trip American explorer and scientist Clarence Birdseye discovered the beneficial effects of " quick-freezing ". For example, fish caught

2924-513: The Esso and Mobil brands under license from ExxonMobil . In 2019, as a result of JX Holdings' merger with TonenGeneral Group in 2017 to form JXTG Holdings , both brands were phased out in favour of ENEOS EneJet. The company was established 1888 as the "Nippon Oil" ( 日本石油 , Nihon Sekiyu ) , or "Nisseki" (日石) for short. In 1999, the company merged with and absorbed the former "Mitsubishi Oil" ( 三菱石油 , Mitsubishi Sekiyu ) . The merged company

3010-688: The Formula One program of Honda , with British American Racing in 2005, Honda Racing F1 from 2006 to 2008, and Super Aguri from 2006 to 2007. Since 2014, the Eneos brand has been featured on Kyle Larson 's #42 Chevrolet Camaro in the NASCAR Xfinity Series in select races. They also sponsor Akinori Ogata in the NASCAR Camping World Truck Series when he drives the 63 for MB Motorsports . He drove

3096-492: The Mountain West , Great Plains , and Southeast . An economic theory is a framework that defines how a particular economic system functions. Economists develop principles in which an economy adheres to, which provides insight onto the relationships between economic events, markets, companies, and the government. In economic theory, vertical integration has been studied in the literature on incomplete contracts that

3182-628: The Tōhoku earthquake . Workers were evacuated, but tsunami warnings hindered efforts to extinguish the fire until 14 March, when officials planned to do so. While developing the Rang Don Oil Field and Helang Gas Field NOEX, part of the Nippon Oil Corporation, conducted environmental impact assessments. These assessments helped them implement management plans based on the results of the assessments, specifically, how to reduce

3268-468: The Vietnam Oil & Gas Group (Petro Vietnam) . Idemitsu Kosan owns 12 oil tankers for international use. Idemitsu owns four refineries: The Hyogo and Okinawa refineries were closed in 2003 after an agreement that Nippon Oil would supply Idemitsu Kosan with 40,000 barrels per day (6,400 m/d) of petroleum products. Tokuyama Refinery was shut down in 2014 as scheduled, in conjunction to

3354-474: The "Little Three", Universal Studios , Columbia Pictures , and United Artists , produced and distributed feature films but did not own theaters. The issue of vertical integration (also known as common ownership) has been the main focus of policy makers because of the possibility of anti-competitive behaviors affiliated with market influence. For example, in United States v. Paramount Pictures, Inc. ,

3440-661: The 63 truck in 2015 and 2016. ENEOS is currently a sponsor of Monster Energy Yamaha MotoGP team as a fuel and lubricants supplier since 2012 season and also supplying fuel and lubricants for Pata Yamaha with Brixx WorldSBK World Superbike team since 2016 season. The company also currently sponsors the 1000km of Palanga endurance race in Lithuania . [REDACTED] Media related to ENEOS at Wikimedia Commons Vertical integration In microeconomics , management and international political economy , vertical integration , also referred to as vertical consolidation,

3526-468: The British. This was popular with the Japanese public but got Idemitsu in conflict with the Japanese government and MITI. Later the same year was the 1953 Iranian coup d'état . In the 1960s, Idemitsu imported crude oil from Russia. Again, it got a good price at 40% below market value but angered the United States who decided to boycott Idemitsu when buying fuel for its military jets in Japan. Idemitsu called

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3612-731: The Hokkaido Refinery gaining an increase in oil supply. There are 30 operating refineries in Japan with total capacity of 4.83 million barrels per day (768,000 m/d), giving Idemitsu Kosan a 13% share of the refining capacity. The company claims between 14% and 34% market share for different products. As of 2008 Idemitsu Kosan is planning to build the Nghi Son Refinery in Vietnam in a joint venture with Kuwait Petroleum International , Vietnamese state-owned PetroVietnam and Mitsui Chemicals . With construction planned to start in 2010, it would be ready in 2013 and become

3698-407: The Japanese oil industry. The Japanese government eventually settled on a compromise that would slowly open for free importation and remove production quotas on refineries. As a means of diversifying its business in the wake of global oil shocks, Idemitsu began development of OLED technology in the 1980s, culminating in the development of a practical full-color LED display introduced by Pioneer in

3784-778: The Japanese-owned South Manchuria Railroad Co. Ltd. was a major customer of lubricant. A branch was opened in Dalian , northeast China and Idemitsu attempted to enter the Chinese market that was dominated by western companies like Standard Oil and the Asiatic Petroleum Company (a Shell subsidiary). The company extended through northern China and into Korea and Taiwan . After the Japanese invasion of Manchuria in 1932

3870-487: The Supreme Court ordered the five vertically integrated studios to sell off their theater chains and all trade practices were prohibited ( United States v. Paramount Pictures , Inc., 1948). The prevalence of vertical integration wholly predetermined the relationships between both studios and networks and modified criteria in financing. Networks began arranging content initiated by commonly owned studios and stipulated

3956-473: The U.S. The vertical merge allowed CVS-Aetna to regulate more of the healthcare and delivery chain and gave them the ability to provide higher quality care to consumers. One of the most significant advantages to this integration is the reduction in costs for healthcare. Amazon.com has been criticized for being anti-competitive as both an owner and participant of its dominant online marketplace. In office products, Sycamore Partners owns both Staples, Inc. ,

4042-493: The US in 1978 ( PURPA ) forced the utilities to buy electricity outside if the rates were competitive; this gave rise to independent power producers . The other deviation from the vertical integration model were local distribution companies in some towns and regions. In the US 250 vertically integrated companies provided 85% of electrical generation. As of 2022, this "public utility" model was still utilized in some US states, mostly in

4128-400: The United States recently. The product line includes the extremely difficult to formulate 0W-50 viscosity oil. New line of premium full synthetic motor oil SUSTINA is now available in the United States. NOC employs over 5,500 people, with additional employees from oversea divisions, and operates the following refineries throughout Japan: Nippon Oil Exploration owns a 5% share of Syncrude ,

4214-411: The animals, and how to handle manure and dispose of carcasses. Generally, the contract also shields the integrator from liability. Jim Hightower , in his book, Eat Your Heart Out , discusses this liability role enacted by large food companies. He finds that in many cases of agricultural vertical integration, the integrator ( food company ) denies the farmer the right of entrepreneurship. This means that

4300-545: The boycott "an odd Christmas gift" but "utterly negligible." In 1978 it broke off contracts with the Soviet Union. The company also came in conflict with the Petroleum Association of Japan which was set up by MITI to restrict production and Idemitsu even left the organization. In 1965 the seamen's union went on strike, the first of its kind in Japan. This led to petroleum shortages. Idemitsu then ignored

4386-399: The cost of entering the market and taking on the currently successful incumbent, but also by innovating their products to make them more appealing in the marketplace than the current incumbent. Vertical integration requires a company to focus not only on its core business, but also on several difficult areas such as sourcing materials and manufacturing partners, distribution, and finally selling

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4472-405: The distance that separates the suppliers and customers from the resources or information, which can then boost profits and efficiency. There are internal and external society-wide gains and losses stemming from vertical integration, which vary according to the state of technology in the industries involved, roughly corresponding to the stages of the industry lifecycle. Static technology represents

4558-464: The e-commerce platform. Alibaba has built its leadership in the market by gradually acquiring complementary companies in a variety of industries including delivery and payments. One of the earliest, largest and most famous examples of vertical integration was the Carnegie Steel company. The company controlled not only the mills where the steel was made, but also the mines where the iron ore

4644-670: The entire value chain, but do not do everything in-house (e.g. assembly of iPhones by manufacturing partner Foxconn ). From the early 1920s through the early 1950s, the American motion picture had evolved into an industry controlled by a few companies, a condition known as a "mature oligopoly ", as it was led by eight major film studios , the most powerful of which were the "Big Five" studios: MGM , Warner Brothers , 20th Century Fox , Paramount Pictures , and RKO . These studios were fully integrated, not only producing and distributing films, but also operating their own movie theaters ;

4730-556: The farmer can only sell under and to the integrator. These restrictions on specified growth, Hightower argues, strips the selling and producing power of the farmer. The producer is ultimately limited by the established standards of the integrator. Yet, at the same time, the integrator still keeps the responsibility connected to the farmer. Hightower sees this as ownership without reliability. Under marketing contracts, growers agree in advance to sell their animals to integrators under an agreed price system. Generally, these contracts shield

4816-448: The fifth-largest oil wholesaler in Japan. The transaction was opposed by the founding Idemitsu family for several reasons, reportedly including ongoing friction between the family and Tembo's management team, cultural differences between the two companies, geopolitical issues (Idemitsu being a major importer of Iranian oil while Showa Shell would remain partly owned by Saudi Aramco ), and pressure from rival JX Nippon Oil & Energy which

4902-457: The first president from outside the founding family, instituted several reforms to alleviate the company's finances, including cutting retroactive discounts offered to distributors. Tembo also merged parts of the company's operations with Mitsubishi Corporation and Mitsui Chemicals . In the 1990s, Idemitsu began opening service stations outside Japan, in Portugal and Puerto Rico , as well as

4988-493: The fuel to company-owned retail stations, for sale to consumers. Standard Oil is a famous example of both horizontal and vertical integration, combining extraction, transport, refinement, wholesale distribution, and retail sales at company-owned gas stations. Telephone companies in most of the 20th century, especially the largest (the Bell System ) were integrated, making their own telephones , telephone cables , telephone exchange equipment and other supplies. The Bell System

5074-411: The high cost of equipment, so Birdseye provided it to them. Until now, Birds Eye has faded slowly because they have fixed costs associated with vertical integration, such as property, plants, and equipment that cannot be reduced significantly when production needs decrease. The Birds Eye company used vertical integration to create a larger organization structure with more levels of command. This produced

5160-453: The impact of the fields on surrounding sea areas. In 2005, Nippon Oil and Ebara-Ballard announced they were going to start field testing a 1 kW household proton-exchange membrane fuel cell system that uses coal oil as fuel. It was the world's first household test with the system. The system achieves a greater power-generation efficiency than normal heating. The system can operate in temperatures as low as -10 deg C. In 2007, Nippon Oil

5246-401: The integrator from liability for the grower's actions and the only negotiable item is a price. In the United States new automobiles can not be sold at dealerships owned by the same company that produced them but are protected by state franchise laws. Ford Motor Company vertically integrated due to high demand for their Model T automobile. With the development of Model T, the company required

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5332-499: The largest coal mining company in Japan and developed the coal cartridge system for small users. It worked on geothermal power experiments and uranium mining in Canada with Cameco and Cogema . The sharp 1985 price drop on oil made Idemitsu's non-oil operations less profitable. Japanese import restrictions on oil once again came under debate. As in 1962, Idemitsu favored opening up to foreign competition, in opposition to most of

5418-403: The late 1990s. Idemitsu's technology was eventually adapted by Samsung Electronics for use in its Galaxy line of smartphones . By 1997 Idemitsu was the largest seller of fuel oil in Japan, due largely to capital investments by president Shosuke Idemitsu during the 1980s and early 1990s. However, these investments left the company deeply in debt with a speculative credit rating. Akihiko Tembo,

5504-434: The now merged company. Within healthcare systems, horizontal integration is generally much more prominent. However, in the United States, major vertical mergers have included CVS Health 's purchase of Aetna , and Cigna 's purchase of Express Scripts . The integration of CVS Health and Aetna resulted in the combination of one of the nation's largest health insurance companies with a pharmaceutical company seen all across

5590-781: The offshore Aga Field in the Niigata Prefecture ( Sea of Japan ). Commercial production began in 1984. Idemitsu took interest in foreign oil fields, and in 1987 it started an oil field in southeast Turkey with Finnish company Neste Oy . Idemitsu acquired stake in Norwegian Snorre oil field and in Australia, as well as participating in oil drilling around the world. The company diversified into coal, importing from Australia and bought mines in Muswellbrook, New South Wales and Ebenezer, Queensland . It became

5676-462: The oil trade became government controlled and Idemitsu was forced to scale back. Instead he went into transport by oil tanker . In 1940 the headquarters were moved to Tokyo and the name changed to the current Idemitsu Kosan K.K. ( kabushiki kaisha : stock company). With the Japanese military expansion and United States joining the Pacific War the government took control of all industries. After

5762-406: The potential competitor, the enhancements to horizontal collusion, and development of barriers to entry. However, it is still debated over if vertical integration expected efficiencies can lead to competitive harm to the market. Some conclude that in many cases that the efficiencies outweigh the potential risks. Contrary to horizontal integration , which is a consolidation of many firms that handle

5848-442: The product. Another major success of Apple's, is the forward integration with their retail stores, allowing them to sell their products directly to customers (helping customers to buy and use Apple's products and services), additionally helping them to control the prices of their products, and thus to maintain high-profit margins when they do. Apple is also known as one of the world's leading "orchestrators" as they exert control over

5934-607: The quotas and produced at full speed. When the price control and production quotas were removed in 1966, Idemitsu rejoined the PAJ. To please the MITI, Sazō Idemitsu's younger brother Keisuke Idemitsu took over as company president, while Sazō became chairman of the board, keeping the actual control. The company continued its vertical integration strategy of controlling the whole supply chain with more tankers and opening petrol depots and warehouses. In 1976 it started drilling for oil and gas in

6020-631: The same part of the production process, vertical integration is typified by one firm engaged in different parts of production (e.g., growing raw materials, manufacturing, transporting, marketing, and/or retailing ). Vertical integration is the degree to which a firm owns its upstream suppliers and its downstream buyers. The differences depend on where the firm is placed in the order of the supply chain. There are three varieties of vertical integration: backward (upstream) vertical integration, forward (downstream) vertical integration, and balanced (both upstream and downstream) vertical integration. Disintermediation

6106-746: The second in Vietnam after the Dung Quat Refinery . Idemitsu Kosan owns a 35.1% stake in the $ 6 billion, 200,000 barrels per day (32,000 m/d) refinery. Idemitsu has opened an office in Hanoi and is considering using the refinery as a base for expanding into Vietnam and surrounding countries. Idemitsu operates 5,250 service stations , many under the Apollo brand. Idemitsu Petrochemical runs two petrochemical plants in Chiba and Tokuyama. It produces

6192-506: The simplest case, where the gains and losses have been studied extensively. A vertically integrated company usually fails when transactions within the market are too risky or the contracts to support these risks are too costly to administer, such as frequent transactions and a small number of buyers and sellers. The following are several case studies of vertical integration in play. Many examples center around American industries, where major companies like General Foods, Carnegie Steel Company ,

6278-455: The steel processes to the next generation. Oil companies , both multinational (such as ExxonMobil , Shell , ConocoPhillips or BP ) and national (e.g., Petronas ) often adopt a vertically integrated structure, meaning that they are active along the entire supply chain from locating deposits , drilling and extracting crude oil , transporting it around the world, refining it into petroleum products such as petrol/gasoline , to distributing

6364-434: The supply chain can be challenging for the firm. Another problem that may stem from vertical integration is the collapse of goals among the various firms in a supply chain. With each firm operating under different systems, integration may cause initial problems in management and production. Vertical integration also proves to be dangerous when monopolistic problems arise in a capitalistic economy. When this happens, competition

6450-587: The supply chain not only under a common ownership but also into one corporation (as in the 1920s when the Ford River Rouge Complex began making much of its own steel rather than buying it from suppliers). Vertical integration can be desirable because it secures supplies needed by the firm to produce its product and the market needed to sell the product, but it can become undesirable when a firm's actions become anti-competitive and impede free competition in an open marketplace. Vertical integration

6536-598: The supply chain. Vertical integration enabled Ford Motor Company to be self-regulating and self-sufficient. EssilorLuxottica , the company that merged with Essilor and Luxottica , occupies up to 30% of the global market share as well as representing billions of pairs of lenses and frames sold annually. Before the merger, Luxottica also owned 80% of the market share of companies that produce corrective and protective eyewear as well as owning many retailers, optical departments at Target and Sears , and key eye insurance groups, such as EyeMed , many of which are already part of

6622-491: The two parties will negotiate tomorrow about how to divide the returns of the investments. Since the owner is in a better bargaining position, he will have stronger incentives to invest. Hence, whether vertical integration is desirable or not depends on whose investments are more important. Hart's theory has been extended by several authors. For instance, DeMeza and Lockwood (1998) have studied different bargaining games, while Schmitz (2006) has introduced asymmetric information into

6708-676: The war Idemitsu Kosan lost its overseas trade with the Allied occupation of Japan . It was among the ten petroleum suppliers selected by the Ministry of International Trade and Industry (MITI) and cut its ties with Nippon Oil . Idemitsu began importing naphtha (an intermediate oil product) first from the United States and later from Venezuela and Iran . The protectionist Oil Industry Law helped Idemitsu against foreign competition in Japan, but also made owning its own refineries important. Idemitsu's first Tokuyama Refinery opened in 1957. This

6794-650: The world. The project utilizes associated gas produced along with crude oil for additional energy production. Nippon Oil is a current sponsor of the F.C. Tokyo football club. It has also sponsored several motor sports teams, such as Team Lexus LeMans ENEOS SC430 in the Japanese Super GT series in the GT500 class. In the late 1980s and early 1990s JSPC , it sponsored the Trust Racing Team Porsche . From 2005 to 2008, ENEOS sponsored

6880-850: Was called "Nippon Mitsubishi Oil" ( 日石三菱 , Nisseki Mitsubishi ) until 2002, when it was renamed back to Nippon Oil Corporation. In 2010, NOC merged with Nippon Mining to form JX Holdings , and Nippon Oil was renamed JX Nippon Oil & Energy. In 2017, JX and TonenGeneral were merged into JXTG Holdings. The company's name was slightly modified to JXTG Nippon Oil & Energy. In 2020, JXTG Nippon Oil & Energy adopted its current name. The company has worldwide locations including JX Nippon Oil & Energy USA Inc. in Schaumburg, Illinois , Torrance, California , and Nippon Oil Lubricants (America), LLC , in Childersburg, Alabama . They have brought their premium brand motor oil ENEOS and SUSTINA into

6966-504: Was developed by Oliver Hart and his coauthors. Consider a seller of an intermediate product that is used by a buyer to produce a final product. The intermediate product can only be produced with the help of specific physical assets (e.g., machines, buildings). Should the buyer own the assets (vertical integration) or should the seller own the assets (non-integration)? Suppose that today the parties have to make relationship-specific investments. Since today complete contracts cannot be written,

7052-514: Was entirely held by the Idemitsu family and company employees. In 1994, Unioil became the exclusive distributor of Idemitsu products in the Philippines . In 2006 Idemitsu Kosan became publicly traded on the Tokyo Stock Exchange after an initial public offering (IPO), raising 109.4 billion yen. In 2016, Idemitsu management announced plans to merge the company with Showa Shell Sekiyu ,

7138-403: Was extracted, the coal mines that supplied the coal , the ships that transported the iron ore and the railroads that transported the coal to the factory, the coke ovens where the coal was coked, etc. The company focused heavily on developing talent internally from the bottom up, rather than importing it from other companies. Later, Carnegie established an institute of higher learning to teach

7224-548: Was followed by the Chiba oil refinery in 1963, Hyogo oil refinery in 1970, the Hokkaido oil refinery in 1973, and the Aichi oil refinery in 1975. In 1953 Idemitsu sent its large tanker Nissho Maru to Iran to purchase oil. Iranian prime minister Mohammed Mosaddeq had recently nationalized the oil fields and was under British-led embargo ( Abadan Crisis ). Idemitsu managed to buy the oil at 30% below market price and displeased

7310-533: Was simultaneously planning its own merger with TonenGeneral . Without approval from the Idemitsu family for a full merger, company management purchased 31% of Showa Shell in December 2016, and launched partnerships in refining and logistics starting in April 2017. Idemitsu completed the acquisition and merger of Showa Shell in 2019. The daughter company Idemitsu Oil & Gas Co., Ltd. produces about 30,000 barrels (4,800 m) of crude oil per day. The primary sources

7396-479: Was the recipient of the Nippon Keidanren Chairman's Prize in recognition of its achievements in a number of areas. They were the first in the Japanese petroleum industry to achieve a zero emission status at their refineries. They are also developing fuel cell systems as well as producing and selling sulfur-free fuel. The Rang Dong Oil Field is also one of the biggest CO 2 reduction projects in

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