In recent decades, the Russian economy has undergone significant structural changes. These changes are developing especially quickly in industries related to the extraction and processing of natural resources, which include oil, gas, aluminum and other industries. Here, a dominant position was occupied by holding structures new to the Russian economy, namely vertically integrated companies (VIC), which united under their control various stages of the production cycle, from the search and extraction of raw materials to the sale of finished products. Their role and importance in the domestic economy are so great that we can say with confidence that Russia’s exit from the economic crisis depends to a certain extent on the successful development of these companies.

The prospects for the development of the Russian Federation's economy directly depend on the most important national economic complex - the oil and gas sector, which accounts for more than a quarter of the country's production volume, as well as the bulk of the state's tax and foreign exchange revenues.

The formation of a market economy requires progressive reforms associated with a deep restructuring of production itself, as well as changes in the nature of the functioning of its economic mechanism and inter-economic relations. An example of systemic transformations is the creation of vertically integrated structures. In the modern structure of the oil business, vertically integrated oil companies occupy a leading position due to their higher efficiency compared to non-integrated structures.

In modern literature, there are many interpretations of the concept of “vertical integration”. Each of the authors, despite the similarities, gives their own definition.

Among them stand out:

Vertical integration is the merger of companies at different stages of the same technological chain.

Vertical integration is a method by which a company creates (integrates) its own input stages of the technological chain (backward integration) or its output stages (front integration).

Vertical integration is an organizational association of enterprises of related technological operations within the framework of common ownership.

Vertical integration is the expansion of the firm's boundaries by including additional technological stages of product processing (preceding or subsequent).

A number of researchers identify types of vertical integration presented in Table 1.

Table 1

Classification of vertical integration of enterprises

Typological feature	Types of vertical integration	Characteristic
1. Depending on the integration of stages of the technological chain	"Back" or "down"	Integration with enterprises of previous technological operations.
	"Forward" or "up"	Integration with downstream enterprises
2. Depending on the volume of integration		All stages of the technological chain are combined
		Combining only part of the incoming elements of the technological chain and producing the rest in-house
Depending on the initiator of integration	progressive	An association initiated by a supplier company seeking to bring its consumers under control
	Regressive	An association initiated by a consumer company seeking to bring its suppliers under control

Vertical integration thus refers to the control of one firm (integrator firm) over two or more successive stages of production and sales of products. By production and marketing stage we mean here any process in which added value is added to the original cost of a product and the product is moved closer to final consumption.

Vertical integration usually comes in two forms: production contracting and ownership integration.

In production contracting, the integrator firm enters into long-term contracts with manufacturers or primary dealers. , Contracts are concluded before the start of the production cycle, strictly fixing the parameters of the contracted products, the technology of their production, delivery times and prices. Often these contracts specify the supplier of inputs to produce the product. Thus, the supplier loses control over its own products - both over the process of its production and over the process of its sales. He is not free to change the technology, the sources of purchase of means of production, or the buyer.

Another type of vertical integration is ownership integration, sometimes called corporate integration. Integration of property means the expansion of proprietary rights to two or more stages of production and marketing of products. This is a deeper version of integration, in which the integrator company takes ownership of part of the assets of the integrated agents. In this case, the integrator company, along with the supplier, may own other enterprises in the production chain.

Vertical integration expands the company's scope of activity in a given industry. Firms can expand their activities towards suppliers (backward) and/or (forward) towards the end user or product.

Vertical integration strategies may pursue the goal of full integration (participation in all stages of the industry value chain) or partial integration (creating positions at the most important stages of the industry value chain). A company can achieve vertical integration by starting its own operations in other parts of the industry's value chain or by acquiring firms already in the industry to bring them closer to the company.

Vertical integration is the process of merging production stages, which helps reduce transaction costs and speed up the entire production process.

The following advantages of vertical integration can be identified:

• Increasing the speed of production of goods by optimizing the internal processes of previously different enterprises.
• Reducing production costs.
• Reducing dependence on the external environment (those enterprises that were external to you and on which you depended are now internal and you no longer depend on them).

There are also disadvantages of vertical integration:

• Entering a new market requires experience in this market, and this experience is not available.
• Increased dependence on the external environment (for example, an internal plant also depends on its suppliers).
• Reduced flexibility (if previously a company could choose among suppliers, now the company needs to take into account the needs of its “integrated” companies).

Thus, vertical integration is the merger of two or more companies that produce components necessary to produce one type of product. All production processes are combined in one company and follow one another. The goal of companies when combining into a vertical structure is to reduce transaction costs associated with the acquisition of necessary resources.

In the modern structure of the oil business, vertically integrated oil companies occupy a leading position due to their higher efficiency compared to non-integrated structures. Vertically integrated companies are production and organizational associations, the interaction of enterprises connected by common participation in the production, sale, and consumption of a single final product: suppliers of materials, manufacturers of components and parts, assemblers of the final product, sellers and consumers of the final product.

The basis of the institutional structure of the oil industry of the Russian Federation is vertically integrated oil companies (VIOC), whose share in the oil and gas business exceeds 90% of total production. The specifics of the construction of the production chain and the operating environment of vertically integrated oil companies determine potential risks of varying degrees of probability of occurrence and severity of impact on the company. In these conditions, the problem of sustainability and analysis of the factors that form it becomes of priority importance, both for oil companies and for the entire Russian economy, which determines the relevance of transformations for sustainability and determining the degree of influence of the main factors of the companies' functioning on it.

Vertical integration has a number of negative aspects:

• unnecessary costs if the company uses its own input production in the presence of external cheap sources of supply;
• losses due to rapid changes in technology;
• losses due to unpredictability of demand, since the ability to more reliably protect and coordinate production is difficult.

Sources for increasing the efficiency of such companies:

• the ability to organize intensive information exchange between departments, which allows you to coordinate plans and schedules for the supply of raw materials, materials, semi-finished products, their processing and delivery of final products to the consumer;
• the possibility of savings through more rational use of space and capacity, easier collection of market information, lower costs for transactions;
• guarantee of product sales during periods of low demand;
• technological advantages due to the fact that the acquiring organization will gain a better understanding of the technology;
• the possibility of saving on the costs of market transactions;
• the possibility of significantly accelerating capital turnover and cost recovery.

Ensuring economic growth requires identifying market opportunities in areas where the company will have a clear competitive advantage. A growth strategy can be developed based on analysis carried out at three levels. At the first level, the company’s capabilities are identified at the existing scale of activity (opportunities for intensive growth). At the second level, opportunities for integration with other elements of the industry’s marketing system are established (opportunities for integration growth). At the third stage, opportunities that will appear outside the industry (opportunities for diversified growth) are identified. Intensive growth is justified in cases where the company has not fully exploited the opportunities of its traditional markets. Integrated growth is possible when the company's field of activity has a strong position and it can obtain additional benefits by moving within the industry. The need for diversified growth arises in a company in cases where the industry does not provide opportunities for its further growth or growth opportunities outside the industry are more attractive.

Integration makes it possible to consolidate economic ties, strengthen incentives for obtaining the most effective final result, concentrate resources in more effective areas of technical policy, use a more efficient system of mutual settlements, including as a result of the use of settlement prices, increase the competitiveness of manufacturers in the foreign market, and also more rationally solve problems of using production and social infrastructure. Organizational integration, carried out sequentially along the technological chain of product release to meet the needs of subjects of market relations, ultimately ensures the creation of conditions for increasing efficiency and optimizing the technical and financial functions of vertically integrated companies. There are different directions for the development of such companies. Oil production is developing. The raw materials extracted in increasing volumes are traditionally exported to various regions. The company's raw material and technological potentials are formed on the basis of the involvement in its structure of industries directly related to the production and subsequent processing of hydrocarbon raw materials. This direction of development is more progressive, although it does not fully meet the requirements of our time.

Integrated development of all components of the company, which involves the interconnected growth of specialization industries, production and social infrastructure, auxiliary and component production. With this direction of formation of the economic complex, there is a real opportunity to achieve the harmonious development of all subsystems of the company, optimize the volume of created capacities for processing resources, and their integrated and rational use. The development concepts underlying this direction are based on the definition of a system of technical and economic indicators, among which indicators of economic efficiency of production, capital investments, use of fixed capital, and environmental protection measures are of paramount importance.

Vertically integrated oil companies include structures that provide all stages of the production cycle - from production to transportation and refining of petroleum products. At the same time, three main components of vertically integrated oil companies can be distinguished: companies engaged directly in production activities (production, refining, marketing of products, as well as geological exploration); service level (construction, consulting, engineering firms, logistics, etc.); financial link. The creation of national vertically integrated oil companies, concentrating in their structural divisions the entire cycle of the main processes of the industry, also has the advantage that losses of raw materials are practically eliminated. Currently, there is a tendency for large companies interested in further growth to become transnational.

Increasing the role of vertical integration, as a transformation of the management structure, in regulating the processes of transformation of the entire economy and ensuring economic growth over the next decades should become a determining factor in the high competitiveness of the economy.

The main task of Russia's energy strategy is to determine ways to achieve a qualitatively new state of the fuel and energy complex (FEC), increase the competitiveness of its products and services on the world market based on the use of potential and setting priorities for the development of the complex, as well as the formation of measures and mechanisms of state energy policy taking into account predicted results of its implementation.

The branches of the oil and gas complex (OGC) are among the basic branches of Russian industry. Their stable operation is of fundamental importance for the development of all segments of the domestic economy: the share of the complex in the fuel and energy balance of Russia is about 70%, in revenues from energy exports - more than 93%, in the production of fuel and energy complex - about 55%, in industrial production of Russia - more than 12 %. However, to one degree or another, many of its shortcomings and problems are inherent in it.

The problem of improving quality and competitiveness requires solving a number of scientific, technical, production, economic, social and environmental problems. It is known that the competitiveness of an enterprise, including vertically integrated oil companies, is determined by several factors, the most significant of which is the company’s presence of an effectively functioning product quality management system, but the most important criterion for increasing competitiveness is the presence of competition in the market as such. At the same time, the structure of the Russian oil and gas complex is oligopolistic in nature and is characterized by the presence of oil and gas companies dominating the market, which operate in all market segments: production and processing of hydrocarbons, storage, wholesale, small wholesale and retail sales of oil and gas products.

Considering the oil industry directly, it is worth noting that during 2004-2010. There remains a steady trend of further growth in economic concentration and a reduction in the number of independent market participants, as well as an increase in the presence of companies with state participation in the markets. In particular, the number of small independent producing oil companies and the volume of oil they produce continues to decline (from 1998 to 2008, their production volume decreased by half - from 10% to 5%). The number of independent gas stations has dropped from 70% to just over 50% over the past three years. The expansion of retail networks of vertically integrated oil companies (VIOCs) is characterized, among other things, by the abandonment of franchising (jobber) operating schemes and the purchase (lease) of assets of retail networks of market operators that previously sold branded petroleum products of VIOCs. Using the example of Rosneft, the inefficiencies of vertically integrated oil companies are shown schematically in Fig. 1 .

Fig.1. Inefficiency of vertically integrated oil companies using the example of Rosneft

At the same time, in 2006, Sibneft was absorbed by Gazprom, and in 2007, at an auction held by the Russian Federal Property Fund in connection with the bankruptcy of Yukos, Rosneft acquired its main assets, essentially absorbing one of the leaders in the oil industry, and became the first among vertically integrated oil companies in production, refining and oil exports.

In general, economic relations in the oil industry are of a civil nature and are carried out on the basis of the legislation of the Russian Federation, which also applies to other sectors of the economy.

Analysis of economic activities shows a high level of economic concentration and the presence of vertical integration, due to the presence of barriers to entry and implementation of profitable activities in the petroleum products markets. At the same time, the main problems faced by potential and existing market participants are:

Restriction or lack of access of independent market participants to oil refining capacities;

Limitation or inability of independent market participants to supply petroleum products to certain regions;

Restriction or lack of access of independent market participants to petroleum products storage facilities;

The presence of business entities that dominate the market for storing petroleum products and at the same time carry out retail sales of petroleum products;

Availability of large administrative resources at vertically integrated oil companies; high initial costs.

In 2007-2008 The number of violations of antimonopoly legislation in the field of oil and petroleum products identified by antimonopoly authorities has sharply increased. VIOCs dominate (including collectively) in the oil production and refining markets; there is practically no free oil market: more than 80% of oil in the Russian Federation is produced by five large VIOCs (Rosneft, Lukoil, TNK-BP, Surgutneftegaz, Gazprom), more than 75% of Russian oil is processed at plants controlled by the same five vertically integrated oil companies. Almost all oil produced by vertically integrated oil companies is sent for processing to its own refineries and for export. The share of the free oil market in the total volume of oil supplies to the Russian Federation is about 15-20%. A small segment of the oil market independent of vertically integrated oil companies is mainly limited to supplies to the refineries of the Ufa group and the Moscow refinery: 40% of the free market is formed at the Ufa group of refineries, about 20% - at the Moscow refinery, and at other refineries - 5-7%. The dominance of vertically integrated oil companies in the oil production and refining markets determines the monopoly structure for the sale of petroleum products in large wholesale from refineries. The main capacities of the refinery are loaded with the processing of VINK's own oil. The remaining capacity is distributed among a small number of large traders. Independent companies, not being able to use the capacity of refineries with their oil, are forced to buy petroleum products on the wholesale market at a price that includes the sales margin of vertically integrated oil companies or traders.

VIOCs use a tolling scheme for oil refining both at “foreign” refineries and at their own. Various “substitution by volume” schemes, redistribution of the basket of petroleum products at the exit from refineries, as well as the use of transit supplies make it difficult to assess the geographical boundaries of markets and the shares of participants in wholesale supplies to the domestic market on a regional basis.

At the same time, when distributing petroleum products for further domestic consumption, the wholesale market is directly connected with regional markets for storage and small-scale wholesale sales of petroleum products. For a business entity to carry out wholesale (and small-scale wholesale) sales of petroleum products on regional markets, it needs its own capacity or access to the storage facilities of other business entities. Thus, the dominance of vertically integrated oil companies in large-scale wholesale sales of petroleum products from refineries (interregional market) and the presence in most regions of sales of vertically integrated oil companies that dominate the markets for storing petroleum products (regional markets) determine the monopolization of regional wholesale markets for petroleum products. Wholesale supplies of petroleum products from VINK refineries to their regional sales outlets are made on a priority basis (volumes, prices). At the same time, there is an unspoken rule: a vertically integrated oil company does not sell petroleum products in bulk to regions where this vertically integrated oil company is sold. This forces independent market participants to either purchase petroleum products from vertically integrated oil companies or look for alternative delivery schemes (delivery of batches in parts from different regions, through neighboring regions with rental of storage facilities, using vehicles, etc.), which leads to unprofitable work. The creation of new capacities for storing petroleum products is often impractical, due to the availability of existing capacities (including mothballed ones) sufficient to meet the demand for storage services.

In 67 constituent entities of the Russian Federation (more than 75%), there are economic entities in the oil product storage markets that dominate (including jointly) with a share of more than 50%; in 57 regions these are sales divisions of vertically integrated oil companies. Economic concentration in the markets for storing petroleum products is characterized by an overwhelming predominance of individual dominance: out of 67 monopolized markets, in 59 - a share of more than 50% is occupied by one company, in 50 regions these are sales divisions of vertically integrated oil companies, in 9 - independent market participants. More than 50% of gas stations belong to independent operators. At the same time, in 62 regions there are economic entities that dominate (including jointly) in the markets for retail sales of various petroleum products, and in all 62 cases there are sales of vertically integrated oil companies in the markets. In 57 regions, vertically integrated oil companies single-handedly dominate the markets for retail sales of petroleum products, independent companies - in 18. Due to the fact that filling stations are supplied with regular deliveries of small-scale batches of petroleum products, a significant obstacle to the development of competition is the presence of business entities that dominate the markets for storage and small-scale wholesale sales petroleum products and at the same time carry out retail sales of petroleum products.

The current structure of the market, generated and supported by all the largest vertically integrated oil companies, is detrimental to the efficiency of the vertically integrated oil companies themselves. The petroleum products market, being opaque, is divided into zones of influence of various vertically integrated oil companies in the wholesale and retail segments. The focus on exports, the opacity of the existing system of sales of petroleum products, contributes to distrust between vertically integrated oil companies - each of which controls the situation only in the zones of its, as a rule, dominant influence. The general description of the current structure is as follows: oil produced by vertically integrated oil companies is processed at its own refinery and sold at its own gas stations, regardless of the territorial distance of these production chain facilities from each other. Despite the obvious attractiveness of trading oil and petroleum products between vertically integrated oil companies, this is not happening.

Of course, this situation was partly due to geographical factors. If international oil companies were present on the Russian market in greater numbers than at the moment, this would inevitably lead to an increase in the level of competition in the domestic market. This, in turn, would lead to the transition of companies to a new level of development, where greater transparency and the use of advanced technologies would be a necessary condition for survival in the market.

However, this option runs counter to the concept of energy and political independence of the Russian Federation as a state. The high importance of this industry for the country as a whole leads to the need to make compromises on the development of vertically integrated oil companies from the point of view of the free market. It should be noted that such a dilemma is inherent in all countries with high dependence on raw materials.

To solve the above problems, it is necessary to create a national oil exchange and a state oil reserve. The main goal of forming an exchange market for oil and petroleum products in Russia is to provide market participants with an effective mechanism for making and executing transactions on the market, as well as to increase the efficiency, transparency and investment attractiveness of oil industry enterprises. The creation of an exchange market in Russia will allow solving a number of important tasks, including: ensuring the stability of the domestic market for petroleum products and identifying an economically justified price level on the domestic market; formation of necessary market information in the oil industry; providing opportunities for risk insurance against unfavorable fluctuations in prices for real goods for producers and consumers of oil and petroleum products.

State oil reserve. Such a reserve was created in the USA and is currently being created in China. When creating a reserve, the state receives guarantees of a stable supply of oil and petroleum products and can regulate domestic and, in certain situations, export prices. The oil reserve should be considered as an insurance instrument in which both the state and the owners of oil and petroleum products should be interested. In addition, the reserve can help the state obtain stable and fairly high income from assets owned by it: when prices are low, the state buys oil for the reserve fund, and when prices are high, it sells it. The United States constantly uses the national reserve for such purposes, earning hundreds of millions of dollars from it.

The competitiveness of any product is its ability to meet the market requirements of a given type of product. The competitiveness of a product is assessed based on a comparison of this product with the corresponding products of other companies. The ultimate goal of creating and operating a quality management system is maximum satisfaction of consumers and other involved parties. To do this, it is necessary to ensure the presence and harmony between such important fundamental elements of the quality system as management responsibility, documentation, organizational structure, resources, processes. What distinguishes this approach from the generally accepted definition is its focus on harmonizing interests through the synergy of resources, structure and documents, which is most relevant for the oil and gas industry at present. Improving the management system and developing information support for management are inextricably linked with the standardization of management processes and the creation of a normative, methodological and regulatory framework.

Documents in the field of standardization that are developed and implemented at Russian enterprises include national, industry, corporate standards, laws, norms and recommendations in the field of standardization, all-Russian classifiers of technical, economic, social and other information. At the same time, for Russian enterprises focused on international markets and striving to compete on equal terms with Western companies, certification for compliance with international standards is of fundamental importance.

A quality management system (QMS) is a set of organizational structure, methods, processes and resources necessary for overall quality management. It is intended for continuous improvement of activities, to increase the competitiveness of the organization in the domestic and world markets, and determines the competitiveness of any organization. She is part of the organization.

Modern QMS are based on the principles of TQM. The various parts of an organization's management system can be integrated together with the quality management system into a single management system using common elements. This increases the effectiveness of planning, the efficiency of resource use, and creates a synergistic effect in achieving the overall business goals of the organization.

Quality management systems are driven by the organization's customer requirements. Consumers need products (services) whose characteristics would satisfy their needs and expectations. Consumer needs and expectations are constantly changing, causing organizations to experience pressure from the competitive environment (market) and technological advances. To maintain ongoing customer satisfaction, organizations must continually improve their products and their processes. An organization's QMS, as one of the management tools, gives confidence to the top management of the organization itself and its consumers that the organization is able to supply products that fully comply with the requirements (of the required quality, in the required quantity for a specified period of time, spending the established resources on it). This management tool operates strictly within the so-called iron triangle of the project.

The QMS is based on eight principles of quality management:

1. Customer focus - the organization needs to do what the customer wants now and will want in the future, even if he does not realize it.
2. Leadership of a manager - since an organization always operates within the framework of limited resources and input data in a competitive environment, only a leader with vision and fortitude is able to ensure the achievement of its goals (mission).
3. Personnel involvement - since the organization’s personnel are its main resource and at the same time the most sensitive stakeholder, the leaders’ reliance on it is the key to success.
4. Process approach - the organization's QMS is not a static entity and its elements
   are processes - through which goals are achieved, that is, through processes any changes are ensured.
5. A systematic approach to management implies taking into account all factors affecting the external and internal environment of the organization.
6. Continuous improvement is the basis of modern management, which implies constant adaptation to existing and expected changes in the environment, and sometimes shapes them.
7. Making decisions based on facts is a reminder that the stability of an organization's functioning is possible not only on the basis of intuition, but also using measurement data.
8. Mutually beneficial relationships with suppliers - together with the principle of customer focus, implies the creation of sustainable supply chains based on mutually beneficial cooperation.

Achieving long-term success by maximizing customer, employee, owner and community satisfaction. The purpose of the QMS is to ensure that the results of the company’s processes meet the needs of the consumer, the organization and society (compliance with both explicit requirements and implied needs).

The oil, petrochemical and gas industries are inherently risky and dangerous and pose potential threats to the environment and human health and safety.

It is known that in modern market conditions the competitiveness of the economy, the economic security of the state and the state of the socio-economic sphere depend on the competitiveness of business structures. Competitiveness in the modern global market environment is largely determined by product compliance with international quality standards. In countries with developed market economies, compliance of business structures with these standards is the concern of their owners, and in countries with developing market economies, issues of standardization and certification are the subject of government policy. Unfortunately, in Russia this problem, even after the government’s agreements on joining the WTO, is not yet understood at the state level, and therefore enterprises in the real sector of the economy remain in the dark about their immediate future.

Standards for organizing the oil and gas complex (STO NTK) series 9000, based on ISO standards series 9000, are aimed at creating conditions for the mutual interest of all participants in cooperation, both internal and external, in increasing the effectiveness and efficiency of both their own production and economic activities and economic efficiency of production activities of an oil and gas complex enterprise.

The set of standards for oil and gas enterprises for quality management systems includes:

• STO NTK 9000 “Quality management systems. Fundamentals and vocabulary." The standard describes and contains a statement of the main provisions of the approach of an oil and gas complex enterprise to quality management systems of internal and external suppliers and introduces additional special terminology used at oil and gas complex enterprises not contained in GOST R ISO 9000. This standard should be used in conjunction with GOST R ISO 9000 in regarding the terminology used; main provisions; quality management principles;
• STO NTK 9001 “Quality management systems. Requirements. Part I. General requirements." The standard establishes, together with GOST R ISO 9001, general requirements for quality management systems of internal and external suppliers. The requirements of the GOST R ISO 9001 standard are applied in full. Additional requirements relate to: general quality management; resource management, including financial support for the organization’s core activities; management of the main production processes, especially in relation to the special characteristics of products and their production processes; monitoring of quality management system processes, including record keeping; security risk management;
• STO NTK 9001 “Quality management systems. Requirements. Part II. Special requirements." The standard establishes additional requirements related to the main activities of an oil and gas complex enterprise and, as a rule, extending to internal suppliers;
• STO NTK 9011 “Quality management systems. Guidelines for the evaluation of quality management systems." The standard defines the procedure and rules for assessing quality management systems for compliance with the requirements of the standard of an oil and gas enterprise by second and (or) third parties.
• STO NTK 9004 “Quality management systems. Recommendations for improvement. Part I. Guidance on the analysis of types and consequences of nonconformities in the design of products and production processes";
• STO NTK 9004 “Quality management systems. Recommendations for improvement. Part P. Guidelines for the application of data processing and analysis methods";
• STO NTK 9004 “Quality management systems. Recommendations for improvement. Part III. Quality Plan Guide";
• STO NTK 9004 “Quality management systems. Recommendations for improvement. Part IV Product design using methods for structuring the quality function";
• STO NTK 9004 “Quality management systems. Recommendations for improvement. Part V. Recommendations for self-assessment of QMS compliance”;
• STO NTK 9004 “Quality management systems. Recommendations for improvement. Part VI. Recommendations for the application of methods for economic analysis of the effectiveness of quality management processes.”

We can talk about the effectiveness of management of vertically integrated companies that adopt these standards and ensure their competitiveness in the modern globalizing world.

Conclusion

The operating conditions of oil companies in Russia are characterized by instability and sharp changes in the parameters of the general economic situation - inflation rates, exchange rate dynamics, changes in inter-industry price ratios, real incomes of the population, and a decline in production in large sectors.

Therefore, foreign experience in managing the oil industry in the form of vertically integrated companies is extremely important for Russia at the current stage of its economic transition to a market economy.

In conditions of high uncertainty and instability of the economic situation, vertically integrated companies have significant advantages over independent manufacturing and intermediary firms, both in terms of the survival of their divisions and in terms of normalizing the general economic situation in the country. Integration allows you to increase the efficiency of the company and its survival in the competition. The advantage of an integrated company is balanced sales. When the price of oil falls, the profits of the upstream divisions decrease, but the refining and petrochemical production increases profits, since the decrease in the cost of raw materials is usually greater than the decrease in the cost of the product, so the losses of one are offset by the gains of the other division.

In general, as practice shows, vertical integration of companies engaged in the oil business has competitive advantages over specialized enterprises and firms.

By implementing their strategies, domestic oil and gas companies can in the future compete with similar foreign companies not only due to the presence of the richest oil and gas reserves and cheap labor (i.e. natural, raw material qualities, which, undoubtedly, is a big advantage and reserve), but also with their developed qualities obtained as a result of the implementation of their own original management decisions and approaches, knowledge and ideas.

The operating conditions of domestic energy companies, which have recently changed radically, are characterized by the need to work in an unstable and uncertain external environment. This situation places new demands on managers related to increasing the ability for independent “strategic” thinking and having access to operational information about the external environment, reflecting a variety of points of view.

The largest oil companies, when implementing long-term sustainable development goals, must clearly define a global business perspective, focusing on new technologies and partnerships with other business entities in order to increase the value of the company.

Taking advantage of a unified management strategy and focusing on the company's key success factors require consolidating the financial results of subsidiaries, as well as introducing the principles of consolidated taxation. Particular importance in the oil industry is attached to flexible tax legislation, which ensures an optimal regime for the activities of the fuel and energy complex and a balance of interests of various participants.

Introduction
1. The concept of vertical integration, its pros and cons
2. Advantages of vertically integrated oil companies as a comprehensive transformation of the management structure
3. Assessing the competitiveness of products of Russian vertically integrated oil companies on the market
4. Quality management systems in the oil industry
Conclusion
List of sources used

1. The demand for integration technologies is constantly growing. Just two years ago, the Russian customer had little idea what integration technologies were, and most often described them as a set of protocols for data transfer (FTP, HTTP) or data synchronization in various programs using APIs or built-in tools. Now comes the understanding of what end-to-end application integration tools are and their benefits. Large enterprises need to integrate dozens of applications, often realizing this at the time of transition from legacy, old systems to new ones. This problem of data migration from old systems can be solved by integrating old and new systems into a single complex.

However, in the future, people understand that data exchange is possible between any programs, and this will greatly simplify their work and, therefore, reduce overhead costs. Thus, application integration tasks develop into business tasks - reducing overhead costs when exchanging information, reducing the influence of the human factor when transferring data, using consistent information from different systems. All this increases the efficiency of business management and allows you to save investments already made in other systems by combining them into a single complex.

2. One of the main tasks is to build a transport environment between company branches. As a rule, large customers have many geographically distributed branches and need prompt exchange of information between them and the parent company. This is a complex task that requires an integrated approach. After all, it is not enough to connect all branches to a single network or to the Internet - such a connection will not guarantee the delivery of information and, especially, the efficiency and security of delivery. What is needed here is a system for guaranteed delivery of messages, and delivery must occur once (to ensure security) and in real time.

Small and medium-sized companies most often need to connect several different programs with each other in order to establish the exchange of information between functional departments, for example, the order receiving department, accounting department, warehouse, delivery department, etc.

3. Our solutions are based on the products of four companies - leaders in the integration products market, according to independent analytical companies. These are IBM, Tibco, Oracle and Microsoft. All their products have their own advantages, which we take into account when making recommendations to the customer:

• Microsoft BizTalk is a convenient and widely used application integration tool;
• Oracle BPEL Process Manager - an integration tool with native support for the BPEL business process execution language;
• Tibco Rendezvous, Tibco EMS - message transmission systems for building a transport system; Tibco BusinessWorks is a powerful tool for executing business processes;
• IBM Websphere is a broad set of tools for business process management and application integration, including a transport environment.

4. To connect the integration environment with various applications, special programs - adapters are used. The main difficulty in introducing integration technologies is the lack of adapters for domestically developed programs. Almost all Russian companies use domestic programs, so they have to develop adapters for such systems on their own. Of course, all manufacturers of integration platforms have provided special tools for developing adapters, but this still affects the timing of implementation of integration solutions.

There is often a way around this difficulty. Since most Russian developments use standard databases (for example, 1C:Enterprise works either with a file database or with Microsoft SQL), you can connect to the database directly, excluding the application itself. In the described example, you can work directly with the 1C:Enterprise database using an adapter for file data sources or for Microsoft SQL. But it is still more convenient to use special adapters for applications, in this case intended specifically for 1C.

1. The demand for integration technologies from Russian customers has not changed significantly recently. It, as always, depends on the characteristics of a particular project and the degree of automation of the customer’s business. Almost every software development project for large companies, in which all major business processes are already automated, contains integration elements. At the same time, there are no separate projects aimed exclusively at system integration.

2. Speaking about integration projects, it is most convenient to classify them by type in accordance with the layers of the classical three-level system architecture: this is integration at the level of databases, application servers and client parts. The most common integration projects are at the level of application servers and databases, while integration at the level of client parts is carried out quite rarely and is associated mainly with Web applications that are built into the corporate portal.

If we talk about different categories of clients, then among small businesses integration at the database level is in greater demand, which allows for a fairly simple exchange of information between different software products. Medium and large companies, as a rule, order integration work at the application server level in order to provide support for new business processes.

3. Today, all leading manufacturers in the field of software development tools - Microsoft, Oracle, IBM and others - have integration tools in their arsenal. Therefore, for projects in which applications are integrated, the capabilities of software products already running in the system are usually used. For example, when implementing our electronic document management system at MTS, we integrated the electronic document management system with the company’s internal corporate portal and the technical support system for internal users using built-in Lotus Notes tools.

A technology that is quite in demand on the market is Web services. Currently, our specialists are implementing a project in which Web services developed on the Microsoft .NET platform are used to solve integration problems.

4. Modern integration tools have reached a fairly high technical level, and problems rarely arise when using them. Minor difficulties still arise when integrating applications developed on different platforms (NET - Java). However, I think that in the near future these difficulties will be overcome. At the same time, quite often customers have problems with application integration due to staff unpreparedness for the inevitable consequence of such projects - changes in existing business processes.

1. Demand has appeared and is growing rapidly. This is due to the fact that many enterprises and organizations have gone through the stage of “patchwork-piecemeal-focused” automation and are now concerned with the problems of increasing the operating efficiency of existing equipment and software. Integration precisely solves these problems - by eliminating repeated data entry, combining various systems into single business processes, reducing the cost of user training, etc.

2. Characteristic tasks at the moment are the organization of data exchange between various applications and information systems, as well as the creation of unified workplaces and access points based on portals. Gradually, there is a demand for more complex projects - the integration of various information systems to automate unified business processes. The complexity of the tasks depends on the size of the customer company - the larger the organization, the larger the “zoo” of software and equipment, and the more acute the problems of increasing efficiency, the more complex the solutions used.

3. CROC uses portal solutions Microsoft SharePoint Portal Server and IBM WebSphere Portal Server, integration products of the IBM MQ family, Microsoft BizTalk Server and MSMQ, business process automation systems from SourceCode (k2.Net), data integration tools from Informatica and Microsoft, etc. etc. The choice of a specific integration product is determined by a large number of factors, and there are no universal solutions.

4. Integration projects, as a rule, involve changes in the company’s business processes and affect several divisions of the customer. Therefore, difficulties usually arise from the need for careful planning and design of this intervention. Technological problems in such projects are secondary (of course, with the proper selection and application of integration products).

1. Over the past year, the demand for the implementation of integration solutions from Russian customers has increased and at the same time has undergone some changes. Companies want not only to solve current problems, but also to take into account business development prospects, understanding the role of IT infrastructure development in the development of the entire organization as a whole. Nowadays, business is becoming much more demanding of IT. If earlier, as a rule, a solution to a specific problem was required and it was enough to select it from those available on the market and implement it, now more often there are demands for automation of end-to-end business processes that affect many people and application systems involved in these processes. The level of specialists responsible for the development of IT infrastructure in companies has increased significantly. Customers strive to achieve real results from the use of IT.

2. Our clients are large companies in which IT is a powerful tool for business development, and this tool must work effectively. The main tasks that almost any client faces are the integration of data stored in various systems, as well as the automation of key business processes using infrastructure software. One of the important requirements when solving integration problems is operational control over ongoing processes and data flows transmitted between integrated systems. At the same time, it is increasingly required that this control be convenient for business and allow it to quickly respond to the current situation.

3. We primarily use solutions from BEA Systems, whose products are undoubtedly among the leaders in the infrastructure software market. Application server, integration and development tools, portal - products delivered under the WebLogic brand have received many prizes and awards from world experts. Today, BEA offers ready-to-use solutions for deploying service-oriented architecture - the AquaLogic family of cross-platform products. AquaLogic is a complete, optimized and unified platform for the successful implementation of SOA, including products for deploying and managing services, building business processes and applications, regardless of the systems, solutions and platforms already used by the client - J2EE, .NET, IBM, SAP , Oracle, etc.

4. The specificity of the implementation of integration technologies lies in the uniqueness of the complex of systems operated by the customer, in the presence of many project participants from both the customer and suppliers of the operated systems. Another very important point is the changing customer requirements. A fairly common situation is when, at intermediate stages of project implementation, the customer’s views change and requirements expand. Having seen the first benefits of integration, the customer puts forward new ideas, a new vision of goals and objectives. And here the benefits of BEA tools and technologies are realized, allowing you to quickly make changes and get clear results.

Konstantin Anisimov, Director of Technical Marketing and Sales Support Department, "Microtest" (http://www.microtest)

1. In the area of ​​business application integration, there is good demand dynamics due to the fact that customers have become more flexible in the design of application infrastructure and do not strive to “cover” all business processes with one solution. Instead, large clients are increasingly seriously considering an IT landscape in which different business problems are solved by different applications with proper integration. This approach not only allows you to select the best-in-class IT solution for each business problem, but also often achieves significant cost savings.

2. The main task, characteristic of all projects, is to understand the specifics of the customer’s business, maximum customer focus, the desire to offer the customer the optimal solution that would combine compliance with the requirements of his business, ease of use, and opportunities for further development. A typical integration task of a large holding is the consolidation of financial information for the enterprises included in the holding. The task becomes more complicated if the holding’s enterprises implement different business applications from different vendors. However, we have a number of solutions to this problem using SAP and Cognos technologies.

It is too early to talk about the differences between integration projects for small and medium-sized business clients, since the number of such projects is small. But for us, every project is important and has its own specifics, regardless of the size of the business. The success of a project is often more influenced by such factors as the level of organizational maturity of the enterprise. The higher it is, the more interested the customer’s employees are in the speedy and successful implementation of the project, the more fruitful and interesting the joint work is.

3. In the practice of the Microtest company, the most popular integration solutions in the application area are built on the SAP NetWeaver and Cognos ReportNet platforms. In addition to application software, our company provides the construction of adequate computing infrastructure and data storage systems using solutions from Network Appliance, Sun Microsystems, HP, Hitachi. This multi-vendor nature allows for a flexible approach to customer needs, providing a comprehensive turnkey solution.

4. A certain problem is the weak formalization of business processes at Russian enterprises, which prevents the implementation of many effective IT solutions, in particular, ERP systems. In addition, the category of “pitfalls” includes cases when, during the implementation of a project, the customer’s imagination begins to work vigorously, and the project has to be rewritten almost anew. But, of course, such a fantasy is still better than the general reluctance to change that existed until recently. The IT market is growing and becoming more developed, and this is gratifying.

1. Demand for integration technologies is showing steady growth as the IT market grows. The share of services in integration projects is also increasing.

At the same time, demand has become more diffuse. In other words, if previously the customer was interested in any specific task, for example, building a data transmission network, creating a data processing center, introducing technical security tools, etc., today he is interested in a comprehensive project aimed at increasing the efficiency of core activities through implementation of modern technologies. And the customer will not start the project until it is clear to him what real financial benefit he will receive from implementation and in what time frame.

Almost all technologies that were previously offered by IT service providers are now in demand in the market. But the demand for integrated solutions in the field of automation, specialized industry technological solutions (SCADA systems, automated process control systems, service stations) has increased significantly.

2. The first and main task of the project that the customer sets for us is to increase the efficiency of his business. And the larger the client, the more pronounced this task becomes. For example, almost no one builds a network for the sake of a network anymore. While small enterprises still sometimes practice this, medium and large enterprises no longer do.

Most customers today have already implemented a number of information and technological systems. Therefore, their next task is to integrate all new systems with previously implemented ones. This means that we must clearly fit the system being built or modernized into the complex of systems and tasks that the customer already has.

Most large customers today work with one general contractor. The customer does not want to conduct a project simultaneously with 10-15 performers. He wants to have a company as a general contractor that will solve all the assigned tasks, provide a feasibility study for the project, and offer convenient schemes for attracting investments for the project. Today we include everything in the concept of “general contracting” - issues of project financing, management of subcontractors, system integration itself, and further issues of operation and support of implemented solutions.

3. We are a multi-vendor company; today we have signed about 20 partnership agreements with vendors, which allows us to offer the customer several solutions that meet their requirements for a specific project. Our partners are Alcatel, APC, Barco, Cisco Systems, Check Point, Computer Associates, Dell, Elteco, Emerson Process Management, Ericsson, IBM, General Electric, HP, Microsoft, MGE UPS Systems, Motorola, Nortel, RIT, Schneider Electric, Siemens, Symbol and others.

4. “Pitfalls” are encountered at almost every stage of an integration project. Errors during the project can negate the entire effect of IT implementation. Therefore, we take a responsible approach to the implementation of each stage of the project and organization of work. This applies to the choice of an integration solution, to interaction with equipment and software suppliers, to the organization of work with subcontractors, and to the development of project financing schemes. A clear understanding of the purpose of implementation, as well as knowledge of the customer’s business and the industry as a whole, allows you to avoid many problems. And, of course, you must have experience in leading large-scale integration projects.

1. To analyze the demand for integration solutions, you need to assess the situation in which many companies currently find themselves. On the one hand, patchwork automation and fragmented corporate applications are typical characteristics of information systems. On the other hand, constantly changing market conditions and business processes pose the task of IT departments to minimize the business response time to any external or internal changes.

A natural way out of this situation is to integrate the components of the information system so that it functions as a single organism that adapts to changes, providing transparent management of the enterprise’s business processes. The importance of creating such a unified information system is recognized by modern IT managers, as evidenced by the growing demand for various types of integration solutions. However, of course, the volume of the integration solutions market and its growth trends in Russia are still inferior to Western indicators.

2. The integration tasks of large customers can be classified depending on the IT strategy they use. The first type of integration problems arises for customers who have implemented complex business systems (in particular, the ERP class) or are in the process of implementation. The customer is faced with the fact that the new system, despite comprehensive automation, does not cover the entire application area, which leads to the emergence of integration problems with additional application systems external to it. A typical example is the integration of ERP and a telecom operator's billing system.

The second type of integration tasks is associated with the customer’s use of the best-of-breed approach, characterized by the implementation of specialized information systems that are most suitable for solving specific problems. Due to the fact that an enterprise’s business processes cover several application systems, the task of integrating them with each other arises. This type of integration tasks is quite widespread in the banking sector.

Medium- and small-sized companies face similar integration challenges, but they typically have fewer systems to integrate.

3. In integration projects, we use software products from leading companies in this area: Oracle (Fusion Middleware product line), IBM (WebSphere products), Microsoft (BizTalk Server). The choice of manufacturer and product for a specific project mainly depends on the requirements and nature of the integration, integrated applications, the IT infrastructure used by the customer, and the information system development strategy.

4. Industrial integration platforms are fairly new technologies, and not all the standards on which they are based have been finalized and adopted. This feature leads to the emergence of a number of technological risks in integration projects. Another important aspect: demonstrate to the customer the benefits of using an integration solution and show that these solutions are not in the nature of “utilities” for transferring data from one system to another, but are involved in managing the enterprise’s business processes and leading to an increase in their efficiency. To mitigate technological risks and demonstrate benefits, the Open Technologies company has a Competence Center, where we model parts of the customer’s IT infrastructure, right down to the installation of ERP system modules, and test our integration solutions on them.

1. The main trend is the growing demand for process-oriented developments (Business Process Management, BPM) and large-scale integration projects. Customers' expectations have increased significantly: it is no longer enough for them to receive any information from various resources - they require a generalized presentation of integrated information, allowing one request to receive consolidated data from several sources, including external ones, and perform a comprehensive analysis of it. In addition, an increasing number of customers prefer to build distributed storage facilities for integrated information. With this approach, instead of physically merging data from integrated resources, associated with complex, expensive and opaque procedures for exporting-importing and converting information, a formalized description of integration rules is created, according to which access directly to data in resources is organized.

2. All tasks can be conditionally divided into two groups: tasks of internal corporate integration and integration with the systems of external counterparties (partners, clients) - in relation to the company or organization. The first refers primarily to the creation of systems for integrating corporate applications within a separate organization. Under the second - integration systems between organizations that ensure secure information exchange with systems external to them. Thus, a unified information environment is created that covers the organization’s partners, suppliers and clients.

Depending on the object of integration, certain local tasks related to the regulatory, organizational, technological or information aspects of integration, as well as information security, come to the fore. For example, with interdepartmental integration, the issues of regulatory support for integration processes and the use of uniform terminology are particularly acute.

3. We should start with the fact that there are several types of integration:

• data - the ETL (Extract Transform Load) tool class is used for this;
• applications - carried out using EAI (Enterprise Application Integration) tools;
• types of user access to applications (corporate portals, groupware);
• based on executed business processes.

Nowadays, application integration is of particular interest to customers. The solutions developed in our company are based on products related to Oracle Fusion Middleware - the core of this platform can be called Oracle BPEL PM (Process Manager). BPEL's capabilities are best realized when it is integrated with other technologies within a single solution. Thus, we propose to use Oracle BPEL PM in conjunction with Oracle Workflow technology, integrated with our own ELAD development to automate business processes.

A full-fledged BPM solution must include a business process modeling tool. Casewise serves as such a tool in our solutions. All of FORS's own developments, in one way or another, also serve as a means of application integration. The direction of data integration has not been forgotten either - our specialists are already working on the project using Oracle Customer Data Hub.

4. Two categories of difficulties can be distinguished - organizational and technical. The first include the reluctance of resource owners to provide their data to other users, the lack of a unified informatization policy within the project (this problem arises when integrating resources of different owners), and the discrepancy in ideas about integration projects between the customer and the contractor (especially when moving to SOA). Technical problems often arise in the absence of uniform integration standards.

Sergei Romanov, technical director, candidate of technical sciences, Computer Mechanics (http://www.mechanics.ru)

1. Demand is quite stable and is associated with outsourcing of everything that the customer cannot do himself due to either a lack of specialists or the non-core nature of the work. Currently, the qualifications of the employees of customer companies are quite high, so the client turns to an integrator either to solve complex problems or to conduct a large project that requires certain resources, both in volume and in terms of qualification level. The need for integration and the benefits that the company receives are already obvious to everyone. New technologies that are popular in the West and the conveniences they provide are on the lips of top-level managers today, although they do not yet understand their prospects, the real benefits specifically for their business and the required amount of costs.

2. The first task is to identify needs and formulate requirements. This is a very important point, since the customer needs to be explained how to solve his problem and possible options, to convince him that there is no need to automate and integrate the “mess”. A clear mutual understanding and presentation of requirements in the form of a technical specification is fundamentally necessary - otherwise, at the end of the project it may turn out that not exactly what the customer expected was done. In other words, on the one hand, the customer’s expectations must be managed at the very beginning of the project, on the other hand, it is necessary to clearly understand the basic fundamental requirements of the customer and find ways to implement them. The second task is to fully agree on the vision of “how it should be” with the customer. Here you need an adequate approach to project management, you need to know who to ask what, with whom to coordinate and approve what, since the vision of how the business process should be organized often differs among senior management, line managers and local performers.

The customer needs to be explained in advance what difficulties he will encounter when implementing a new solution, what efforts and decisions will be required from him, what resistance to innovation can be expected from the staff of his company. You need to understand for yourself: is senior management ready to take a principled position on key issues?

For different categories of clients, the difference lies in the amount of work done. For medium and large clients, the timing and accuracy of calculating project costs are important, which can be difficult to calculate with an acceptable error. In addition, for these clients it is necessary to clearly build a scheme of interaction: on what issues to whom to contact, how and in what time frame these issues will be resolved.

3. In terms of technologies and solutions, we have everything standard: either we use the technologies of those vendors whose solutions are being implemented, or we are guided by the principle of minimal costs for both implementation and subsequent development of the implemented solution, taking into account the requirements for the medium term.

4. The first pitfall is an unclearly defined technical task. Here we have a standard dilemma: either we spell out in detail in the technical specifications everything that requires significant costs, or we don’t do this and have problems when delivering the solution to the customer, due to an ambiguous interpretation or incomplete description of the requirements. The second “pitfall” is that the client often imagines how everything should be in principle, and does not have a clear picture in detail: the organization of business processes, the necessary parameters and requirements for them, information flows, duties and responsibilities, delimitation of rights, etc. d. Often he thinks up something or changes something at the stage of project implementation, and this leads to missed deadlines and an increase in the cost of the project on the part of the contractor. The third pitfall is the untested nature of technologies or solutions, including those from a specific vendor. This becomes critical when, on the one hand, the performer has no experience and, therefore, knowledge of the problems that he may encounter, and on the other hand, he is pressed for deadlines and does not have time to simulate the situation. Here it is important to be able to identify and manage risks, minimizing them and competently justifying your position to the customer.

1. The demand for the development of integration projects is quite uniform, it is stable and predictable. As a rule, Russian companies operate many information systems that need to be integrated with each other. This is due to the fact that in the overwhelming majority of medium and large companies there is “piece-wise” automation, and very often, to solve current business problems, integration is carried out on the principle of “everyone with everyone”. In a number of cases, this was a necessary measure and temporarily allowed problems to be solved. But, growing like a snowball, such integration begins to bring only headaches and becomes a “stumbling block” when the company’s business begins to reach a new level. This is when the question of “correct” integration arises.

2. Our clients are representatives of medium and large businesses, since small businesses, as a rule, have one or two or three information systems and are quite able to cope with their integration on their own. For different categories of clients, integration tasks are not much different; only the scale matters. In large companies where several heterogeneous information systems are involved and used simultaneously, the main task of the integrator becomes the conceptual development of processes: how data is exchanged, what, where, in what format, in what period of time, for what event, what business logic is involved must be implemented. Often the customer himself imagines all these processes only in general terms; This leads to priority tasks that need to be solved before directly starting to integrate applications. This:

• inspection of the customer’s infrastructure;
• survey and analysis of business processes affected by the integration solution;
• identification and analysis of the list, volume and number of information objects transferred between integrated systems;
• selection of preferred technologies and mechanisms for interaction with integrated systems;
• development of technical specifications.

3. All of the above logically leads us to the next solution to the customer’s problems - we offer him a comprehensive transition to world-tested integration servers, with the help of which information systems can be integrated with each other according to the “star” type. This approach allows for flexibility when the landscape of information systems changes: for example, if one IS is replaced by another, it does not have to be reintegrated with each of the existing information systems. Today there are many integration platforms in the world, among which I would like to highlight Microsoft BizTalk Server and IBM WebSphere Business Integration.

4. Among the so-called “pitfalls” of integration, the first thing to note is that it is often necessary to integrate information systems at the moment when they are just being created or are radically changing, especially due to the reorganization of the customer’s business. In this case, you have to improvise and make changes directly during the integration project. The second point that causes difficulties during integration is when it is necessary to integrate unique or legacy information systems that support their own data format and are closed to interaction with external systems. And the third “stone” is “home-written” systems that do not have documentation, which is quite common in Russia.

1. One of the trends in the development of Russian business is the increased number of acquisitions and mergers. Accordingly, the demand for integration of applications to automate activities is constantly growing. The tasks of integrating various systems are included in the list of priority tasks that IT managers must solve. Customers use application integration to reduce risk by creating a single information space.

There are several fundamentally different approaches to integration processes. Firstly, this is integration at the level of business processes. Secondly, integration at the data level. Thirdly, this is integration at the level of collective work with content. Each approach uses its own technologies for solving integration problems. In the first case, this is SOA technology. When integrating at the data level, classic solutions are used to build data warehouses, which allow you to create a single version of corporate data. In the third case, these are solutions for building portals, when the user receives all the necessary information through a single entry point.

2. Typical integration tasks are all described in the previous paragraph. For small companies, this is the creation of portals for collaboration. For medium-sized ones - collecting raw or aggregated data from existing systems into a new system, creating portals.

In the case of large organizations, a lot depends on the client. There are two types of clients: enterprises with established infrastructure and standards, and companies after a merger with another company. The former need portal solutions, the latter - full integration at all levels.

3. In its projects, our company uses technologies and solutions from Oracle, IBM and Microsoft, which are among the leaders in the integration systems market.

4. It is necessary to determine the goals of integration and, during the pre-project survey, select the most suitable software for these purposes. In addition, the qualifications of the project team are important. If the above conditions are not met, the entire project will be a pitfall.

John Stuckey Director McKinsey, Sydney
David White former McKinsey employee
Magazine "McKinsey Bulletin" No. 3(8) for 2004

Managers of any large company sooner or later have to deal with issues of vertical integration. The authors of this article, which, although it has become a classic in the decade since its first publication, has not lost its relevance, examines in detail the four most common reasons for vertical integration. But most importantly, they urge business leaders not to pursue vertical integration when value can be created or preserved otherwise. Vertical integration is successful only in one case - if it is vitally necessary.

Vertical integration is a risky, complex, expensive and practically irreversible strategy. The list of successful cases of vertical integration is also short. Nevertheless, some companies undertake to implement it without even conducting a proper risk analysis. The purpose of this article is to help managers make smart decisions about integration. In it we consider different situations: some companies really need vertical integration, while others are better off using alternative, quasi-integration strategies. We conclude by describing a model that is appropriate to use when making such decisions.

When to integrate

Vertical integration is a way to coordinate different components of an industry chain under conditions in which bilateral trade is not beneficial. Take, for example, the production of liquid iron and steel - two stages of traditional steel production. Liquid iron is produced in blast furnaces, poured into thermally insulated ladles and transported in liquid form to a nearby steel foundry, usually half a kilometer away, where it is then poured into steelmaking units. These processes are almost always carried out by one company, although sometimes the liquid metal is bought and sold. Thus, in 1991, Weirton Steel sold liquid iron to Wheeling Pittsburgh, located almost 15 km away, for several months.

But such cases are rare. The specificity of fixed assets and the high frequency of transactions force technologically closely connected pairs of buyers and sellers to negotiate the terms of a continuous flow of transactions. Against this background, transaction costs and the risk of abuse of market power are growing. Therefore, from the point of view of efficiency, reducing costs and risks, it is better for all processes to be carried out by one owner.

Figure 1 shows the types of costs, risks, and coordination issues that need to be considered when making integration decisions. The difficulty is that these criteria often contradict each other. For example, vertical integration, although it usually reduces some risks and transaction costs, at the same time requires large start-up capital investments, and, in addition, the effectiveness of its coordination is often very questionable.

There are four valid reasons for vertical integration:

• the market is too risky and unreliable (there is a “failure” or “insolvency” of the vertical market);
• companies operating in adjacent parts of the production chain have more market power than you;
• integration will give the company market power, since the company will be able to set high barriers to entry into the industry and conduct price discrimination in different market segments;
• the market has not yet fully formed, and the company needs to vertically “integrate forward” for its development, or the market is in decline, and independent players are leaving related production units.

These reasons cannot be equated. The first prerequisite, the failure of the vertical market, is the most important.

Vertical market failure

A vertical market is considered failed when it is too risky to transact on it, and it is too expensive or impossible to write contracts that could insure against these risks and monitor their execution. A failed vertical market has three characteristics:

• limited number of sellers and buyers;
• high specificity, durability and capital intensity of assets;
• high frequency of transactions.

In addition, a failed vertical market is particularly susceptible to uncertainty, bounded rationality, and opportunism, problems that affect any market. None of these characteristics by themselves indicate the failure of a vertical market, but taken together they almost certainly warn of such danger.

Sellers and buyers. The number of buyers and sellers in the market is the most important, although most variable, variable that signals the failure of a vertical market. Problems arise when there is only one buyer and one seller in a market (bilateral monopoly) or a limited number of buyers and sellers (bilateral oligopoly). Figure 2 shows the structures of such markets.

Microeconomists believe that in such markets, the rational forces of supply and demand do not themselves set prices or determine the volume of transactions. Rather, the terms of transactions, especially the price, depend on the balance of power between sellers and buyers in the market, and this balance is unpredictable and unstable.

If there is only one buyer and one supplier in a market (especially in long-term relationships involving frequent transactions), then both have a monopoly position. As market conditions change in unpredictable ways, disagreements often arise between players and both may abuse their monopoly position, which creates additional risks and costs.

For bilateral oligopolies, the problem of coordination is especially relevant and complex. When there are, for example, three suppliers and three consumers in the market, then each player sees five others in front of him, with whom he will have to share the total surplus. If market participants act imprudently, they will transfer the surplus to consumers in the fight against each other. It would be possible to avoid such a development of events by creating a monopoly in each link of the industry chain, but antimonopoly legislation does not allow this. There remains another option - to integrate vertically. Then, instead of six players, there will be three left in the market, each competing with only two contenders for their share of the surplus and probably behaving more intelligently.

We used this concept when a company came to us for help: it could not decide whether to maintain a repair shop for its steelmaking needs. The analysis showed that the services of external contractors would be much cheaper for the company. However, the opinions of the company's managers were divided: some wanted to close the workshop, others were against it, fearing disruptions in production and dependence on few external contractors (there was only one enterprise within a radius of 100 km that repaired large equipment).

We recommended closing a repair shop if it could not compete with the competition for routine maintenance and non-machine-intensive work. The scope of this work was known in advance, it was carried out using standard equipment, and could easily be completed by several external contractors. The risk was low, as were the level of transaction costs. At the same time, we advised leaving the large parts repair department at the plant (but significantly reducing it) so that it would only perform emergency work, which requires very large lathes and rotary lathes. It is difficult to predict the need for such repairs; only one external contractor could do it, and the costs of equipment downtime would be enormous.

Assets. If problems of this kind arise only with a bilateral monopoly or a bilateral oligopoly, are we not then talking about some kind of market curiosity that has no practical significance? No. Many vertical markets, which appear to have many players on each side, actually consist of closely intertwined groups of two-sided oligopolists. These groups are formed because the specificity, durability and capital intensity of assets so increase the costs of switching to other counterparties that of the visible multitude of buyers, only a small part has real access to sellers, and vice versa.

There are three main types of asset specificity that determine the division of industries into bilateral monopolies and oligopolies.

• Location specificity. Sellers and buyers locate fixed assets, such as a coal mine and a power plant, close together, thereby reducing transportation and inventory costs.
• Technical specificity. One or both parties invest in equipment that can only be used by one or both parties and has little value in any other use.
• Specificity of human capital. The knowledge and skills of company employees are of value only to individual buyers or customers.

Asset specificity is high, for example in the vertically integrated aluminum industry. Production consists of two main stages: bauxite mining and alumina production. Mines and processing plants are usually located close to each other (location specificity) for several reasons. Firstly, the cost of transporting bauxite is incomparably higher than the cost of bauxite itself, secondly, during beneficiation, the volume of ore is reduced by 60-70%, thirdly, enrichment plants are adapted to process raw materials from a particular deposit with its unique chemical and physical properties. Finally, fourthly, changing suppliers or consumers is either impossible or associated with prohibitively high costs (technical specificity). That is why the two stages - ore mining and alumina production - are interconnected.

Such bilateral monopolies exist despite the apparent multitude of buyers and sellers. In reality, at the pre-investment phase of interaction between mining and processing enterprises, there is still no bilateral monopoly. Many mining companies and alumina producers cooperate around the world and participate in tenders every time a new deposit is proposed to be developed. However, in the post-investment stage, the market quickly turns into a two-sided monopoly. The ore miner and the ore beneficiator developing the deposit are economically tied to each other by the specificity of their assets.

Since industry players are well aware of the dangers of vertical market failure, ore mining and alumina production are usually handled by one company. Almost 90% of bauxite transactions are carried out in vertically integrated environments or quasi-vertical structures, such as joint ventures.

Auto assembly plants and component suppliers can also become highly dependent on each other, especially when certain components fit only one make and model. Given the high level of investment in component development (asset capital intensity), the combination of an independent supplier and an independent auto assembly plant is very risky: the likelihood that one of the parties will take the opportunity to renegotiate the terms of the contract is too high, especially if the model has been a great success or, conversely, has failed. Auto assembly companies, to avoid the dangers of bilateral monopolies and oligopolies, are gravitating towards “backwards integration” or, as Japanese automakers have done, creating very close contractual relationships with carefully selected suppliers. In the latter case, the reliability of relationships and agreements protects partners from abuse of market power, which often happens when companies that are technologically dependent on each other keep their distance.

Bilateral monopolies and oligopolies that arise in the post-investment stages due to the specificity of assets are the most common reason for the failure of a vertical market. The effect of asset specificity is magnified when assets are capital-intensive and have a long lifespan, and when they have high fixed costs. In a bilateral oligopoly, there is generally a high risk of disruption to delivery or sales schedules, and the high capital intensity of assets and large fixed costs especially increase losses caused by disruption of production schedules: the scale of direct losses and lost profits during downtime is too significant. In addition, the long life of assets increases the period of time over which these risks and costs may arise.

Taken together, specificity, capital intensity and long life cycles often result in high switching costs for both suppliers and customers. In many industries, this explains most decisions in favor of vertical integration.

Frequency of transactions. Another factor in the failure of a vertical market is frequent transactions with bilateral oligopolies and high specificity of assets. Frequent transactions, negotiations and bidding increase costs for the simple reason that they create more opportunities for abuse of market power.

Figure 3 shows the relevant mechanisms of vertical integration depending on the frequency of transactions and asset characteristics. If sellers and buyers interact infrequently, then, regardless of the degree of asset specificity, vertical integration is usually not necessary. If asset specificity is low, markets operate efficiently using standard contracts, such as leasing or commodity credit agreements. With high asset specificity, contracts can be quite complex, but there is still no need for integration. An example is large government contracts in construction.

Even if the frequency of transactions is high, low asset specificity mitigates its negative effects: for example, going to the grocery store does not involve a complex negotiation process. But when assets are specific, long-term, and capital-intensive, and deals occur frequently, vertical integration is likely to make sense. Otherwise, transaction costs and risks will be too high, and drawing up detailed contracts that eliminate uncertainty will be extremely difficult.

Uncertainty, bounded rationality and opportunism. Three additional factors have important, although not always obvious, influences on vertical strategies.

Uncertainty prevents companies from drawing up contracts that can guide them if circumstances change. The uncertainty in the work of the repair shop mentioned above is due to the fact that it is impossible to predict when and what kind of breakdowns will occur, how complex the repair work will be, and what will be the ratio of supply and demand in local markets for equipment repair services. In conditions of high uncertainty, it is better for the company to keep the repair service in-house: the presence of this link in the technological chain increases stability, reduces the risk and costs of repairs.

Bounded rationality also prevents companies from writing contracts that detail the details of transactions under all possible scenarios. According to this concept, formulated by economist Herbert Simon, people's ability to solve complex problems is limited. The role of bounded rationality in market failure was described by Oliver Williamson, one of Simon's students.

Williamson also introduced the concept of opportunism into economic circulation: when given the opportunity, people often violate the terms of commercial agreements in their favor if it suits their long-term interests. Uncertainty and opportunism are often driving forces in the vertical integration of markets for R&D services and markets for new products and processes resulting from R&D. These markets often fail because the main product of R&D is information about new products and processes. In a world of uncertainty, the value of a new product is unknown to the buyer until he tries it out. But the seller is also reluctant to disclose information until payment for the goods or services, so as not to give away a “company secret”. Ideal conditions for opportunism.

If specific assets are needed to develop and implement new ideas, or if a developer cannot protect its copyright by patenting the invention, companies are likely to benefit from vertical integration. For buyers, this will be the creation of their own R&D departments. For sellers - “integration forward”.

For example, EMI, the developer of the first CT scanner, would have to “forward integrate” into distribution and service, as other high-tech medical device manufacturers typically do. But at that time she did not have the appropriate assets, and creating them from scratch required a lot of time and money. General Electric and Siemens, with their integrated R&D, process engineering and marketing structures, undertook the design analysis of the tomograph, developed their own, more advanced models, provided training, technical support and customer service and captured leading positions in the market.

Although uncertainty, bounded rationality and opportunism are ubiquitous phenomena, they are not always equally pronounced. This explains some interesting features of vertical integration across countries, industries and time periods. For example, Japanese steel and automobile companies are less “backward integrated” into their supply industries (components, engineering services) than their Western counterparts. But they work with a limited number of contractors with whom they maintain strong partnerships. Probably, among other things, Japanese manufacturers are ready to trust external contractors also because opportunism is a much less characteristic phenomenon for Japanese culture than for Western culture.

Defending against market power

The failure of the vertical market is the most important argument in favor of vertical integration. But sometimes companies integrate because their partners have more advantageous market positions. If one link in the industry chain has more market power and therefore abnormally high profits, players from the weak link will strive to penetrate the strong link. In other words, this link is attractive in itself and may be of interest to players both from within the industry chain and from outside.

The industrial concrete industry in Australia is known to be fiercely competitive, with barriers to entry to the market low and demand for uniform and standardized products cyclical. Market participants often engage in price wars and have low incomes.

Mining sand and gravel for concrete producers, on the contrary, is an extremely profitable business. The number of quarries in each region is limited, and the high costs of transporting sand and gravel from other regions pose high barriers to entry for new players in this market. A few players, protecting common interests, set prices much higher than those that would prevail in a competitive market environment and receive significant excess profits. A significant share of the costs of concrete production is attributed to expensive raw materials, so concrete companies have "integrated back" into the quarrying business, mainly through acquisitions, and now three large players control almost 75% of industrial concrete production and quarrying.

It is important to remember that entering the market through an acquisition does not always bring the desired results to the acquiring party, because it can give away the capitalized equivalent of the surplus in the form of an inflated price for the acquired company. Often players from less powerful links in the industry chain pay too high a price for companies from stronger links. In the Australian concrete industry, at least a few quarry takeovers have destroyed value for the acquiring companies. Recently, a major concrete producer acquired a smaller integrated gravel and concrete producer for a price that gave the company a price-to-cash flow ratio of 20:1. When the cost of capital of the acquiring company is about 10%, it is very difficult to justify such a high overpayment.

Players from less powerful parts of the industry chain certainly have incentives to move into more powerful ones, but the question is whether they can integrate without the costs of integration outweighing the expected benefits. Unfortunately, judging by our experience, this is rarely possible.

Managers of such companies often mistakenly believe that, as industry insiders, it is easier for them to enter other parts of the industry chain than for outside applicants. However, usually the technologically different links of an industry chain are so different from each other that “outsiders” from other industries, even if they have the same knowledge and skills, are much more likely to enter a new market. (New players, by the way, can also destroy the potential of an industry link: once one company overcomes the barriers to entry, others can do the same.)

Creating and using market power

Vertical integration may make strategic sense if its goal is to create or exploit market power.

Entry barriers. When most of the competitors in an industry are vertically integrated, it tends to be difficult for non-integrated players to enter the market. To become competitive, they often have to maintain a presence throughout the industry chain. This drives up capital costs and economically viable minimum production levels, effectively raising entry barriers.

The aluminum industry is one industry where vertical integration has contributed to higher barriers to entry. Until the 1970s, six large vertically integrated companies - Alcoa, Alcan, Pechiney, Reynolds, Kaiser and Alusuisse - dominated all three levels: bauxite mining, alumina production and metal smelting. The markets for intermediate raw materials, bauxite and alumina were too small for non-integrated traders. But even integrated companies were not eager to shell out the $2 billion (in 1988 prices) required to enter the market as an integrated player on a reasonable scale.

Even if the newcomer were to overcome this barrier, it would need to immediately find ready markets to sell its products - about 4% of global aluminum production by which production would increase. Not an easy task in an industry growing at about 5% per year. Not surprisingly, the industry's high barriers to entry are largely due to the vertical integration strategy pursued by large companies.

Much the same barriers to entry exist in the auto industry. Automakers are usually "forward integrated" - they have their own distribution and dealer (franchise) networks. Companies with a powerful dealer network usually own it entirely. For market newcomers, this means that they must invest more money and time in developing new and extensive dealer networks. If it weren’t for the strong dealer networks of American companies, established over many years, Japanese manufacturers would have won a much larger market share from American auto giants like General Motors at one time.

However, creating vertically integrated structures to erect barriers to entry is often very expensive. Moreover, success is not guaranteed, and if the volume of excess profits is quite large, then inventive newcomers will eventually find loopholes in the fortifications erected. Aluminum producers, for example, at some point lost control of the industry, mainly because outsiders entered through joint ventures.

Price discrimination. By “forward integration” into certain customer segments, a company can benefit further from price discrimination. Consider, for example, a supplier with market power whose customers occupy two segments with different degrees of sensitivity to price changes. The supplier would like to maximize its profit by charging a higher price in the low-sensitivity customer segment and a lower price in the high-sensitivity segment. But he cannot do this because consumers receiving the product at a low price will resell it at a higher price to consumers in the adjacent segment and ultimately undermine this strategy. By “integrating forward” into low-price customer segments, the supplier will be able to prevent overselling of its products. It is known that aluminum producers are integrating into the most price-sensitive production sectors (production of aluminum cans, cables, casting of components for auto assembly), but do not strive for sectors in which there is almost no danger of substitution of raw materials and suppliers.

Types of strategy at different stages of the industry life cycle

When an industry is just starting out, companies often “forward integrate” to develop the market. (This is a special case of vertical market failure.) In the early decades of the aluminum industry, manufacturers integrated into aluminum products and even consumer goods to push aluminum into markets that had traditionally used steel and copper. Early manufacturers of fiberglass and plastic similarly discovered that the advantages of their products over traditional materials were only appreciated through “forward integration.”

However, in our opinion, this justification for vertical integration is not enough. Integration will only be successful if the acquired company has a unique patented technology or a well-known brand that is difficult for competitors to copy. It makes no sense to acquire a new business if the acquiring company cannot generate excess profits for at least a few years. In addition, new markets will only develop successfully if the new product has clear advantages over existing or similar products that may appear in the near future.

As an industry reaches an aging stage, some companies integrate to fill the void left by the departure of independent players. As the industry ages, weak independent players withdraw from the market, leaving key players vulnerable to increasingly concentrated suppliers or customers.

For example, after the cigar business began to decline in the United States in the mid-1960s, the country's leading supplier, Culbro Corporation, had to acquire all distribution networks in key markets on the US East Coast. Its main competitor, Consolidated Cigar Company, was already involved in distribution, and Culbro distributors “lost interest” in cigars and were more willing to sell other products.

When vertical integration is not needed

Vertical integration should be dictated only by vital necessity. This strategy is too expensive, risky, and very difficult to reverse. Sometimes vertical integration is necessary, but very often companies go for excessive integration. This is explained by two reasons: firstly, integration decisions are often made on dubious grounds, and secondly, managers forget about large quantities other, quasi-integration strategies, which in fact may turn out to be much preferable to full integration in terms of costs and economic benefits.

Dubious grounds

Often decisions about vertical integration are not justified. Cases where the desire to reduce cyclicality, secure market penetration, break into segments with higher added value or become closer to the consumer could justify such a move are extremely rare.

Reduced cyclicality or volatility of earnings. This common but often weak reason for vertical integration is a variation on the old theme that corporate portfolio diversification benefits shareholders. This argument is invalid for two reasons.

Firstly, incomes in adjacent links of the industry chain are positively correlated and are influenced by the same factors, such as changes in demand for the final product. This means that combining them in one portfolio will not significantly affect the overall level of risk. For example, this is the case in the zinc ore mining and zinc smelting industry.

Secondly, even with negative earnings correlation, smoothing the cyclicality of corporate earnings is not that important for shareholders - they can diversify their own investment portfolios to reduce unsystematic risk. Vertical integration in this case is beneficial to the company's management, but not to the shareholders.

Guarantees of supply and sales. It is generally accepted that if a company has its own sources of supply and distribution channels, then the likelihood that it will be forced out of the market, fall victim to price fixing, or suffer from short-term imbalances in supply and demand that sometimes arise in intermediate commodity markets is significantly reduced.

Vertical integration may be justified when the threat of market exclusion or “unfair” pricing indicates either vertical market failure or structural market power of suppliers or customers. But where the market is functioning properly, there is no need to own sources of supply or distribution channels. Market players will always be able to sell or buy any quantity of goods at the market price, even if it seems “unfair” in comparison with costs. An integrated company operating in such a market is only deceiving itself by setting internal transfer prices that differ from market prices. Moreover, a company integrated on this basis may make incorrect decisions regarding production levels and capacity utilization.

The structural features of the selling and buying sides of the market are the same implicit, but critically important factors that determine when to take over supply and distribution. If both sides are characterized by competitive principles, then integration will not be beneficial. But if structural features create vertical market failures or persistent market position imbalances, integration may be warranted.

Several times we have witnessed an interesting situation: a group of oligopolists - suppliers of raw materials to a rather fragmented industry with weak buyer power - "integrated forward" to avoid price competition. Oligopolists understand that it is shortsighted to fight for market share through price wars, except perhaps for very short periods, but they still cannot resist the temptation to increase their market share. Therefore, they “integrate forward” and thereby secure all the major consumers of their products.

Such actions are justified when players avoid price competition and when the price that oligopolistic companies pay to acquire their industrial customers does not exceed their net present value. And “forward integration” is beneficial only if it helps maintain oligopolistic profits at the top of the industry chain, where there is a constant imbalance of power.

Providing additional value. The idea that companies should move into higher value-added parts of the industry chain is usually expressed by those who adhere to another rather outdated stereotype: being closer to the consumer. Following these tips leads to greater “forward integration” - towards the end consumer.

There may be a positive correlation between the profitability of a link in an industry chain, on the one hand, and the absolute value of its added value and proximity to the consumer, on the other, but we believe that this correlation is weak and unstable. Vertical integration strategies based on these assumptions tend to destroy shareholder value.

Surplus, not added value or proximity to the consumer, is what generates truly high profits. Surplus is the income a company receives after covering all costs of doing business. The size of the surplus and added value (which is defined as the sum of all costs and markups minus the cost of all materials and/or components purchased in an adjacent link in the industry chain) of one of the links in the industry chain can only be proportional as a result of a random combination of circumstances. However, surplus is most often created at the stages closest to the consumer, because this is where, according to economists, direct access to the consumer's wallet and, accordingly, consumer surplus opens.

Therefore, the general recommendation should be: “Integrate into those parts of the industry chain where the maximum surplus can be achieved, regardless of proximity to the consumer or the absolute value added.” However, remember that the links with consistently high surplus should be protected by barriers to entry, and the cost of overcoming these barriers for a new entrant into the sector through vertical integration should not exceed the surplus that it can obtain. Typically, one of the barriers to entry is the specialized knowledge required to run a new business, which newcomers often lack, despite the experience gained in related parts of the industry chain.

Consider, for example, the industry chain of the cement and concrete industry in Australia (see Figure 4). In each individual link, the surplus is not proportional to the added value. In fact, the sector with the highest added value, that is, transportation, does not bring a decent return, while the sector with the least added value, the production of fly ash, creates a significant surplus. In addition, the surplus is not concentrated in the sector closest to the consumer, and if it is formed, it is at the primary stages. The size of the surplus varies widely across the industry chain and must be determined on a case-by-case basis.

Quasi-integration strategies

Company management sometimes goes for excessive integration, losing sight of many alternative quasi-integration solutions. Long-term contracts, joint ventures, strategic alliances, technology licenses, asset ownership and franchising require less investment while allowing companies more freedom than vertical integration. In addition, these strategies effectively protect against vertical market failure and against suppliers or customers with greater market power.

Joint ventures and strategic alliances, for example, allow companies to exchange certain types of goods, services or information while maintaining formal business relationships for all other items, maintaining their status as independent companies and not being exposed to the risk of antitrust prosecution. Potential mutual benefits can be maximized and conflicts of interest inherent in trading relationships minimized.

This is why most plants in the aluminum industry turned into joint ventures in the 1990s. Through such structures, it is easier to exchange bauxite, alumina, know-how and local knowledge, establish oligopolistic coordination and manage relations between global corporations and the governments of the countries in which they operate.

Asset ownership is another type of quasi-integration structure. The owner retains ownership of key assets in adjacent parts of the industry chain, but outsources their management. For example, manufacturers of automobiles or steam turbines have specialized tools, fixtures, templates, stamping and casting molds, without which it is impossible to produce key components. They enter into contracts with contractors to produce these components, but remain the owners of the means of production and thus protect themselves from the possible opportunistic behavior of the contractors.

Similar agreements can be concluded with companies lower in the industry chain. Franchising agreements allow an enterprise to control distribution without diverting significant financial and management resources to this, which would be inevitable with full integration. The franchisor does not seek to own tangible assets, since they are not specific or long-term, but remains the owner of intangible assets, such as a trademark. By having the right to cancel the franchise agreement, the franchisor controls the standards. For example, McDonald's Corporation, in most countries in which it operates, strictly monitors prices, product quality, level of service and cleanliness.

When it comes to buying or selling technology, licensing agreements should be considered as an alternative to vertical integration. Technology and R&D markets are at risk of failure as inventors find it difficult to protect their copyrights. Sometimes an invention is only valuable when combined with specific complementary assets, such as experienced marketing or customer support personnel. A license agreement may be a good solution to the problem.

Diagram 5 presents a decision-making methodology for the developer of a new technology or product. We see, for example, that when a developer is protected from counterfeiting by patents or trade secrets, and additional assets are either of little value or can be found on the market, then it is necessary to enter into licensing agreements with all comers and pursue a long-term pricing policy.

This strategy is typically suitable for industries such as petrochemicals and cosmetics. When technology becomes easier to copy and complementary assets become more important, vertical integration may be necessary, as we showed with the CT scanner.

Changing vertical strategies

As market structure changes, companies must adjust their integration strategies. Among the structural factors, the number of buyers and sellers and the role of specialized assets change most often. Of course, companies should reconsider strategies, even if they simply turned out to be wrong, and this does not necessarily require any structural changes.

Sellers and buyers

In the mid-1960s, the oil market showed all the symptoms of vertical failure (see Figure 6). The four largest sellers controlled 59% of industry sales, the eight largest 84%. The situation was much the same for buyers. There were very few possible combinations of buyers and sellers adequate to each other, since oil refineries could only work with certain grades of oil. Assets were capital-intensive and long-term, transactions were very frequent, and the need to constantly modernize plants increased the level of uncertainty. Not surprisingly, there was almost no spot market for oil, most transactions were carried out within the company, and if contracts were concluded with external contractors, they were for 10 years - to avoid the transaction costs and risks associated with trading in an unstable, vertically bankrupt market.

However, over the next 20 years, the market structure underwent fundamental changes. As a result of the nationalization of oil reserves by OPEC members (replacing the Seven Sisters with a multitude of national exporters) and the increase in the number of non-OPEC exporters (such as Mexico), the concentration of sellers has decreased significantly. By 1985, the market share controlled by the four largest sellers had fallen to 26%, and by the eight largest sellers to 42%. The concentration of ownership of oil refineries has decreased significantly. Moreover, technological improvements have reduced asset specificity as modern refineries can process significantly more grades of oil and do so with lower switching costs.

All this has encouraged the development of an efficient crude oil market and has significantly reduced the need for vertical integration. It is estimated that in the early 1990s, about 50% of transactions took place on the spot market (where even large integrated players trade), and the number of non-integrated players began to grow rapidly.

Disintegration

The shift towards vertical disintegration that occurred in the 1990s was caused by three main factors. First, in the past, many companies integrated without sufficient justification and now, although no structural changes occurred, had to disintegrate. Second, the emergence of a powerful mergers and acquisitions market is increasing pressure on overintegrated companies to restructure, either voluntarily or through coercion from their shareholders. And third, many industries around the world have begun structural changes that enhance the benefits of trade and reduce the risks associated with it. The first two reasons are obvious, but the third, in our opinion, requires explanation.

In many industry chains, the increased number of buyers and sellers has reduced the costs and risks associated with trading. Industries such as telecommunications and banking have been deregulated, allowing new players to enter markets previously occupied by national monopolies or oligopolies. In addition, with the economic development of many countries, including South Korea, China, Malaysia, more and more potential suppliers are emerging in many industries, such as consumer electronics.

Also, the globalization of consumer markets and the need to become “local” in any of the countries where they operate is forcing many companies to create production facilities in regions to which they previously exported their products. This, of course, increases the number of buyers of components.

Another factor that reduces costs and increases the positive effects of trade is the increasing need for greater production flexibility and specialization. For a car manufacturer, for example, which uses thousands of components and assemblies in its production (at the same time they are constantly becoming more complex and their life cycle is shortened), it is very difficult to maintain a leading position throughout the chain. It is much more profitable for him to focus on design and assembly, and purchase components from specialized suppliers.

It is also important that today's managers have become adept at using quasi-integration strategies, such as long-term preferential relationships with suppliers. In many industries, procurement departments are trying to establish closer relationships with suppliers. In the US auto industry, for example, companies are moving away from rigid vertical integration, reducing the number of suppliers and developing stable partnerships with only a few independent suppliers.

However, there is also an opposite trend - towards consolidation. As conglomerates break up, their components end up in the hands of companies that use them to increase their shares in certain markets. But, in our opinion, the factors that stimulate the formation of industry structures capable of competing at the global level are much stronger.

Not only industry chains are disintegrating: under the influence of the market, many companies are forced to disintegrate their own business structures. Cheaper foreign manufacturers force companies from developed countries to constantly reduce costs. Technological advances in information and communications technology are reducing the costs of bilateral trade.

While all of these factors contribute to the disintegration of industry chains and business structures, one caveat is still worth making. We suspect that some executives, in an effort to get rid of “extra assets” and “give the company more flexibility,” may end up throwing out the baby—and more than one—with the bathwater. They disintegrate some functions and activities that are vital in a failed vertical market. As a result, it turns out that some of the strategic alliances they switched to are legalized piracy, and some supplier “partners” are not averse to showing their tempers as soon as their competitors are kicked out the door.

In any case, decisions on integration or disintegration must be based on careful analysis and not made according to the dictates of fashion or on a whim. Therefore, we have developed a step-by-step methodology for vertical restructuring (see diagram 7). The basic idea is still the same: integrate only if it is vital.

Using the methodology

We have successfully applied this methodology in situations where our clients had to decide whether to keep a particular production facility in-house or purchase the required products (services) externally. Among these dilemmas are the following:

• Should the steel mill's repair shop remain as it is?
• Does a large mining company need its own legal department or is it more profitable to use the services of a law firm?
• Should the bank print checkbooks on its own or order them from specialized printing houses?
• Does a telecommunications company with 90,000 employees need to organize its own training center or is it better to attract external instructors?

We have also used our methodology to analyze strategic issues, such as:

• What parts of the business structure—product development units, branch network, ATM network, data center, etc.—should a retail bank own?
• What mechanisms should a public research organization use when it provides services and sells its knowledge to private sector clients?
• Should a mining and processing company integrate into metal production?
• What mechanisms does an agricultural company use to penetrate the Japanese imported meat market?
• Should a brewing company divest itself of its chain of beer restaurants?
• Should a gas production company buy pipelines and power plants?

Process

The process depicted in Diagram 8 speaks for itself, but a few points are still worth explaining.

First, when making a strategic decision, companies must take a serious approach to quantifying various factors. In general, it is important to know exactly the switching costs (in case the company has to change the supplier with whom it has invested in specific assets), as well as the transaction costs that are inevitable in the case of purchases or sales to third parties.

Second, in most cases, when analyzing the advantages or disadvantages of vertical integration, it is important to evaluate the behavior of small groups of sellers and buyers. A technique such as supply and demand analysis helps to see the full range of possible actions, but it cannot be used to predict behavior deterministically (although it is quite suitable for analyzing more competitive market structures). To predict the actions of competitors and choose the optimal strategy, it is often necessary to use dynamic modeling and competitive games. Problem-solving techniques like these are as much a science as they are an art, and our experience has shown that the involvement of the company's senior management is essential to ensure that they understand and acknowledge the assumptions that often have to be made about competitor behavior.

Thirdly, this process involves a lot of analytical work, and it takes a lot of time. The primary, most general analysis of the proposed steps identifies key problems, allows us to develop hypotheses and collect material for subsequent deeper analysis.

Fourth, those who use our methodology must be prepared to face serious opposition. Vertical integration is one of those last bastions of business strategy where intuition and tradition are revered above all else. It is difficult to offer a universal solution to this problem; try to give examples of other companies from your or a similar industry that will clearly illustrate your points. Another way is to attack faulty logic head-on, break it down into its component parts and find the weak links. But perhaps the best thing is to involve all stakeholders in the analysis and decision-making process.

Vertical integration is a complex, capital-intensive and long-term strategy, and therefore involves risk. And it's not surprising that sometimes leaders make mistakes - and give far-sighted strategists the opportunity to learn from the mistakes of others.

See, for example: R.P. Rumelt. Structure, and Economic Performance. Harvard University Press, 1974.

See: H.A. Simon. Models of Man: Social and Rational. New York, John Wiley, 1957, p. 198.

See: O.E. Williamson. Markets and Hierarchies: Analysis and Antitrust Implications. New York, Free Press, 1975.

See: D.J. Teece. Profiting from Technological Innovation // Research Policy, vol. 15, 1986, p. 285-305.

The concepts of “excess profit” and “seller surplus” are synonymous.

See: E.R. Corey. The Development of Markets for New Materials. Cambridge, MA, Harvard University Press, 1956.

See: K.R. Harrigan. Strategies for Declining Business. Lexington Books, 1980, chapter 8.

Annotation. In the article, the author analyzes vertical integration as one of the most effective growth strategies for modern companies. The author examines in detail the types of vertical integration, substantiates the reasons for their use, as well as the advantages and disadvantages of each of them.
Keywords: strategy, vertical integration, growth strategies, market share, suppliers, consumers, products, distributors, market.

In the history of economics, the 50s of the 20th century are usually marked as the period of the emergence of vertical integration. Because at that time there were only monopolies, which in their essence were vertical integration. Today there are many definitions of “vertical integration” in modern scientific literature.

Others understand vertical integration as a method by which a company is able to create (integrate) its own input stages of the technological chain (backward integration) or its output stages (forward integration).

There is also such a definition as “vertical integration includes additional technological stages of product processing (subsequent or previous), by expanding the boundaries of the company.”

As the study showed, countries that used vertical integration were far ahead of others in numerous economic indicators.

It can definitely be said that vertical integration is considered one of the alternatives to a growth strategy, which is usually called an offensive strategy, i.e. it can be classified as a strategy that provides the company with external growth. Sometimes it is also called intersectoral integration.

This strategy is most profitable in economic segments with rapidly changing and rapidly developing technologies, when the products of a strategic business element or company are preparing to enter the market, the product or company is considered not yet mastered, therefore, in the life cycle of the product, they will be at the stage of development. In addition to the above, integration has the effect of increasing the reliability of supply or distribution, while reducing transaction costs.

The main criteria for choosing the type of vertical integration are:market share, growth rate, sales volume and revenue.

TO first The block should include situations in which conducting transactions within one company will be much more efficient than in cases where the company is not a single entity. Simply put, it is necessary to ensure that the costs of a manufactured product within the company are lower than the costs of purchasing this product on the market.

Second The group covers situations that are associated with an increase in financial performance.

But before undertaking vertical integration, a company must answer the question: will it worsen its current position by moving into new industries. Since new structural processes in a company can complicate control and management over them, they can also lead to increased costs.

Thanks to the scope of integration, it is possible to determine whether the company will carry out full or partial integration, or whether it will completely abandon integration.

Based on the direction of the company's movement, vertical integration is divided into the following types: reverse, it is also called “backward integration” and straight which is called “forward integration”. In addition to the above, there is also balanced integration(balanced integration), flowing in two directions at once, thereby combining reverse and direct.

Straight Vertical integration is the growth of a company by purchasing consumer businesses. This strategy is carried out when a company seeks to capture a larger market share, thereby achieving higher economies of scale. It is implemented by strengthening the control function through such structures that are located between the enterprise and the consumer of the product. Product distribution and sales systems are just such structures.

Therefore, direct integration is carried out by creating its own product distribution networks in order to ensure control over distribution channels. And this is due to the fact that the absence of such control can serve as the basis for the accumulation of inventories of goods that can lead production to partial or incomplete utilization, which can cause unstable product output and a lack of leverage to reduce final costs.

With the Internet growing “forward,” integration has gained widespread popularity. Most manufacturing companies create their own online stores, selling their products to consumers, thereby bypassing intermediaries.

As the analysis showed, and Forward integration is most effective if:there are few high-quality and affordable distributors in the industry; retail firms and distributors have fairly high profits; distributors are unreliable, too expensive and unable to meet the need that the company poses; there are expectations for significant industry growth; there are advantages in stable production and distribution; The company has enough capabilities and resources to manage the new business.

Vertical integration "backwards" expressed in the growth of the enterprise through the acquisition of a company or several companies acting as suppliers; it can also be realized through increased control over its own suppliers. The company uses such an integration strategy, trying to pursue a more effective policy in terms of cost savings, thereby maintaining a stable supply of resources.

The reverse integration strategy is useful when:current suppliers are too expensive or unreliable; there are only a few suppliers, mostly small ones; the industry is expanding quite rapidly; suppliers have high profits; the company has the necessary resources and capabilities when creating a new business.

Depending on who is the initiator vertical integration, it should be divided into: progressive when the supplier tries to establish control over consumers and regressive when the consumer tries to control the supplier.

Vertical integration is also divided into quasi-integration and full.

At full integration, the entire produced product, at a certain stage, without the involvement of any other party, moves to the next stage.

A to vaziintegration- this is a narrow vertical integration, which is possible in such forms as: joint ventures, strategic alliances, technology licenses, franchising, long-term contracts.

As the study showed, vertical integration has its advantages and disadvantages.

The main advantages of vertical integration include:cost reduction due to liquidated costs when purchasing on the market; improving the quality of supplies; the emergence of the possibility of acquisition through the integration of necessary resources; formation of a larger market share; improved coordination in the supply chain; provision of distribution channels; investments are facilitated (transitioned) into specialized assets (human and physical, site); the company has opportunities to acquire new competencies.

As for the disadvantages of vertical integration, these include, first of all: educationhigher costs, due to which the company may not manage new activities effectively; the emergence of distribution channels that lead to deterioration in product quality and reduced efficiency due to lack of competition; an increase in high investment and bureaucracy, which leads to a decrease in flexibility; identification of high potential for legal consequences due to size (whereby the organization is capable of becoming a monopolist); the formation of new competencies that may collide with old ones, leading to a disadvantage.

Thus, vertical integration helps an enterprise to improve production potential and at the same time reduce costs, focus on quality in all areas of activity, maintaining and increasing profitability, applying a system of effective price discrimination. And most importantly, with the help of vertical integration, a barrier is created for new competitors to enter the market, which will allow the enterprise to monopolize the sales market.

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A vertically integrated company is one of the effective methods of running your own business. The emergence of large structures with vertical integration represents one of the most significant trends present in the modern Russian economy. At the same time, the ambiguity that characterizes any vertically integrated company is a pretty good reason to take a comprehensive look at its main advantages and incentives.

Incentives

Modern large integrated organizations constantly dictate the vector of development of the modern economy and represent the basis for maintaining stability in the field of production of any developed country. A vertically integrated company is a fairly popular option for doing business, and in the Russian economy, various ones are becoming more and more significant. One of the most important reasons for the formation of such structures in the existing sector of the domestic economy is that favorable conditions were created for economic activity, mutual barriers were removed, and the opportunity arose to strengthen their competitive positions and exercise control over the market environment.

Analysis of the market in which integrated participants operate involves active consideration of the various specific incentives for different integration options.

What are they?

There are two types of incentives that distinguish a vertically integrated company - internal and external. The latter represent various requirements that are imposed by some special characteristics of the structure of a certain industry market on potential or existing participants, as well as all kinds of actions performed by firms operating in it.

The concept of vertical integration also provides for the division of external incentives into two more categories - non-strategic and strategic. Non-strategic are determined depending on the characteristics of the industry that do not directly depend on the company's activities. At the same time, strategic incentives are characteristics and are combined due to the work of the organizations themselves.

The defining non-strategic characteristics of the market are:

• capacity and saturation;
• current concentration of buyers and sellers;
• elasticity of demand;
• degree of infrastructure development;
• foreign competition;
• administrative barriers;
• general economic situation;
• transaction costs.

If we talk about the most important strategic characteristics of the market, then this already includes:

• price and other types of discrimination;
• the nature and degree of integration;
• concerted actions of companies;
• presence of potential competitors;
• actions of companies aimed at limiting entry into the market.

Intrinsic incentives represent any potential and actual benefits that a company receives after using a particular type of integration. The internal integration advantages that OAO Gazprom and other organizations with such a structure received may be the result of effective interaction between several group members, and at the same time can be expressed in various structural market changes that are favorable for the organization's work.

Benefits and Motives

The Russian economy, dominated by large organizations such as OJSC Rosneft and others, is characterized by a tendency towards vertical integration, which in fact represents one of the most controversial forms. Vertically integrated companies are distinguished not only by all the advantages and disadvantages of large enterprises, but also have their own patterns of development.

Disadvantages for the market

In connection with all this, it can be said that the consequences that vertical integration entails are ambiguous. As an example, we can take the same company “Rosneft”, which, on the one hand, sets a trend towards reducing production costs and, accordingly, prices, but on the other hand, it has significant market power and strengthens monopolization.