Measuring economies of horizontal and vertical integration in the US electric power industry:how costly is unbundling?

This research employs econometric analysis on a cross section of American electricity companies in order to study the cost implications associated with unbundling the operations of integrated companies into vertically and/or horizontally separated companies. Focusing on the representative sample average firm, we find that complete horizontal and vertical disintegration resulting in the creation of separate nuclear, conventional, and hydro electric generation companies as well as a separate firm distributing power to final consumers, results in a statistically significant 13.5 percent increase in costs. Maintaining a horizontally integrated generator producing nuclear, conventional, and hydro electric generation while imposing vertical separation by creating a stand alone distribution company, results in a lower but still substantial and statistically significant cost penalty amounting to an 8.1 % increase in costs relative to a fully integrated structure. As these results imply that a vertically separated but horizontally integrated generation firm would need to reduce the costs of generation by 11% just to recoup the cost increases associated with vertical separation, even the costs associated with just vertical unbundling are quite substantial. Our paper is also the first academic paper we are aware of that systematically considers the impact of generation mix on vertical, horizontal, and overall scope economies. As a result, we are able to demonstrate that the estimated cost of unbundling in the electricity sector is substantially influenced by generation mix. Thus, for example, we find evidence of strong vertical integration economies between nuclear and conventional generation, but little evidence for vertical integration benefits between hydro generation and the distribution of power. In contrast, we find strong evidence suggesting the presence of substantial horizontal integration economies associated with the joint production of hydro generation with nuclear and/or conventional fossil fuel generation. These results are significant because they indicate that the cost of unbundling the electricity sector will differ substantially in different systems, meaning that a blanket regulatory policy with regard to the appropriateness of vertical and horizontal unbundling is likely to be inappropriate.

Vertical and horizontal scope economies in the regulated US electricity power industry

This paper investigates vertical economies between generation and distribution of electric power, and horizontal economies between different types of power generation in the U.S. electric utility industry. Our quadratic cost function model includes three generation output measures (hydro, nuclear and fossil fuels), which allows us to analyze the effect that generation mix has on vertical economies. Our results provide (sample mean) estimates of vertical economies of 8.1% and horizontal economies of 5.4%. An extensive sensitivity analysis is used to show how the scope measures vary across alternative model specifications and firm types. © 2012 Blackwell Publishing Ltd and the Editorial Board of The Journal of Industrial Economics.

Is China's manufacturing sector becoming more high-tech? Evidence on shifts in comparative advantage, 1987-2005

Purpose – The paper assesses the extent to which China’s comparative advantage in manufacturing has shifted towards higher-tech sectors between 1987 and 2005 and proposes possible explanations for the shift. Design/methodology/approach – Revealed comparative advantage (RCA) indices for 27 product groups, representing high-, medium and low-tech sectors have been calculated. Examination of international market attractiveness complements the RCA analysis. Findings for selected sectors are evaluated in the context of other evidence. Findings – While China maintains its competitiveness in low-tech labour intensive products, it has gained RCA in selected medium-tech sectors (e.g. office machines and electric machinery) and the high-tech telecommunications and automatic data processing equipment sectors. Evidence from firm and sector specific studies suggests that improved comparative advantage in medium and high-tech sectors is based on capabilities developing through combining international technology transfer and learning. Research limitations/implications – The quantitative analysis does not explain the shifts in comparative advantage, though the paper suggests possible explanations. Further research at firm and sector levels is required to understand the underlying capability development of Chinese enterprises and the relative competitiveness of Chinese and foreign invested enterprises. Practical implications – Western companies should take account of capability development in China in forming their international manufacturing strategies. The rapid shifts in China’s comparative advantage have lessons for other industrialising countries. Originality/value – While RCA is a well-known methodology, its application at the disaggregated product group level combined with market attractiveness assessment is distinctive. The paper provides a broad assessment of changes in Chinese manufacturing as a basis for further research on capability development at firm and sector levels.

Introduction: improving manufacturing performance through technology diffusion, implementation and management

The role of technology management in achieving improved manufacturing performance has been receiving increased attention as enterprises are becoming more exposed to competition from around the world. In the modern market for manufactured goods the demand is now for more product variety, better quality, shorter delivery and greater flexibility, while the financial and environmental cost of resources has become an urgent concern to manufacturing managers. This issue of the International Journal of Technology Management addresses the question of how the diffusion, implementation and management of technology can improve the performance of manufacturing industries. The authors come from a large number of different countries and their contributions cover a wide range of topics within this general theme. Some papers are conceptual, others report on research carried out in a range of different industries including steel production, iron founding, electronics, robotics, machinery, precision engineering, metal working and motor manufacture. In some cases they describe situations in specific countries. Several are based on presentations made at the UK Operations Management Association's Sixth International Conference held at Aston University at which the conference theme was 'Achieving Competitive Edge: Getting Ahead Through Technology and People'. The first two papers deal with questions of advanced manufacturing technology implementation and management. Firstly Beatty describes a three year longitudinal field study carried out in ten Canadian manufacturing companies using CADICAM and CIM systems. Her findings relate to speed of implementation, choice of system type, the role of individuals in implementation, organization and job design. This is followed by a paper by Bessant in which he argues that a more a strategic approach should be taken towards the management of technology in the 1990s and beyond. Also considered in this paper are the capabilities necessary in order to deploy advanced manufacturing technology as a strategic resource and the way such capabilities might be developed within the firm. These two papers, which deal largely with the implementation of hardware, are supplemented by Samson and Sohal's contribution in which they argue that a much wider perspective should be adopted based on a new approach to manufacturing strategy formulation. Technology transfer is the topic of the following two papers. Pohlen again takes the case of advanced manufacturing technology and reports on his research which considers the factors contributing to successful realisation of AMT transfer. The paper by Lee then provides a more detailed account of technology transfer in the foundry industry. Using a case study based on a firm which has implemented a number of transferred innovations a model is illustrated in which the 'performance gap' can be identified and closed. The diffusion of technology is addressed in the next two papers. In the first of these, by Lowe and Sim, the managerial technologies of 'Just in Time' and 'Manufacturing Resource Planning' (or MRP 11) are examined. A study is described from which a number of factors are found to influence the adoption process including, rate of diffusion and size. Dahlin then considers the case of a specific item of hardware technology, the industrial robot. Her paper reviews the history of robot diffusion since the early 1960s and then tries to predict how the industry will develop in the future. The following two papers deal with the future of manufacturing in a more general sense. The future implementation of advanced manufacturing technology is the subject explored by de Haan and Peters who describe the results of their Dutch Delphi forecasting study conducted among a panel of experts including scientists, consultants, users and suppliers of AMT. Busby and Fan then consider a type of organisational model, 'the extended manufacturing enterprise', which would represent a distinct alternative pure market-led and command structures by exploiting the shared knowledge of suppliers and customers. The three country-based papers consider some strategic issues relating manufacturing technology. In a paper based on investigations conducted in China He, Liff and Steward report their findings from strategy analyses carried out in the steel and watch industries with a view to assessing technology needs and organizational change requirements. This is followed by Tang and Nam's paper which examines the case of machinery industry in Korea and its emerging importance as a key sector in the Korean economy. In his paper which focuses on Venezuela, Ernst then considers the particular problem of how this country can address the problem of falling oil revenues. He sees manufacturing as being an important contributor to Venezuela's future economy and proposes a means whereby government and private enterprise can co-operate in development of the manufacturing sector. The last six papers all deal with specific topics relating to the management manufacturing. Firstly Youssef looks at the question of manufacturing flexibility, introducing and testing a conceptual model that relates computer based technologies flexibility. Dangerfield's paper which follows is based on research conducted in the steel industry. He considers the question of scale and proposes a modelling approach determining the plant configuration necessary to meet market demand. Engstrom presents the results of a detailed investigation into the need for reorganising material flow where group assembly of products has been adopted. Sherwood, Guerrier and Dale then report the findings of a study into the effectiveness of Quality Circle implementation. Stillwagon and Burns, consider how manufacturing competitiveness can be improved individual firms by describing how the application of 'human performance engineering' can be used to motivate individual performance as well as to integrate organizational goals. Finally Sohal, Lewis and Samson describe, using a case study example, how just-in-time control can be applied within the context of computer numerically controlled flexible machining lines. The papers in this issue of the International Journal of Technology Management cover a wide range of topics relating to the general question of improving manufacturing performance through the dissemination, implementation and management of technology. Although they differ markedly in content and approach, they have the collective aim addressing the concepts, principles and practices which provide a better understanding the technology of manufacturing and assist in achieving and maintaining a competitive edge.

The impact of NC machinery upon manufacturing industry

The changing face of industry due to the adoption of `New Technology' is briefly discussed, as are the corresponding structural changes in the workforce. The adoption of NC machinery is identified as one of the major innovations affecting the structure of industry. The development of NC machinery, and of relevant programming techniques are reviewed, and the problems arising from its initial sponsorship by the aerospace industry are highlighted. The process of its subsequent diffusion into industry is reviewed. Skill levels adopted for NC use in Britain and Germany are discussed, and analysed to create a structural pattern. These classifications of skill levels are then used to examine the organisational structures adopted by companies utilising NC machines. The greater use made of higher level shop floor skills by German companies is discussed. The results of two surveys of the use made of NC by companies in the North East of England are presented. Effective company organisation for NC use is described, and lack of foresight is shown to lead to vulnerability problems where skills can become concentrated in a few key people. This led to closure of a company in one instance. It is shown that small sub-contract companies have adopted a highly skilled shop floor workforce, and that they have survived in the present hostile economic environment, whilst companies who have used NC to de-skill the shop floor contracted dramatically in the same period. The lack of awareness of the potential for reviewing the product design in relation to the flexibility of NC, so leading to reductions in work in progress levels, is highlighted. Recommendations for skill structures appropriate to various sized companies and suitable training programs are presented to ensure that the full potential of NC machinery is achieved.

A micro industry with closed energy and water cycles for sustainable rural development

Sustainable development requires combining economic viability with energy and environment conservation and ensuring social benefits. It is conceptualized that for designing a micro industry for sustainable rural industrialization, all these aspects should be integrated right up front. The concept includes; (a) utilization of local produce for value addition in a cluster of villages and enhancing income of the target population; (b) use of renewable energy and total utilization of energy generated by co and trigeneration (combining electric power production with heat utilization for heating and cooling); (c) conservation of water and complete recycling of effluents; (d) total utilization of all wastes for achieving closure towards a zero waste system. Enhanced economic viability and sustainability is achieved by integration of appropriate technologies into the industrial complex. To prove the concept, a model Micro Industrial Complex (MIC) has been set up in a semi arid desert region in Rajasthan, India at village Malunga in Jodhpur district. A biomass powered boiler and steam turbine system is used to generate 100-200 KVA of electric power and high energy steam for heating and cooling processes downstream. The unique feature of the equipment is a 100-150 kW back-pressure steam turbine, utilizing 3-4 tph (tonnes per hour) steam, developed by M/s IB Turbo. The biomass boiler raises steam at about 20 barg 3 tph, which is passed through a turbine to yield about 150 kW of electrical power. The steam let out at a back pressure of 1-3 barg has high exergy and this is passed on as thermal energy (about 2 MW), for use in various applications depending on the local produce and resources. The biomass fuel requirement for the boiler is 0.5-0.75 tph depending on its calorific value. In the current model, the electricity produced is used for running an oil expeller to extract castor oil and the castor cake is used as fuel in the boiler. The steam is used in a Multi Effect Distillation (MED) unit for drinking water production and in a Vapour Absorption Machine (VAM) for cooling, for banana ripening application. Additional steam is available for extraction of herbs such as mint and processing local vegetables. In this paper, we discuss the financial and economic viability of the system and show how the energy, water and materials are completely recycled and how the benefits are directed to the weaker sections of the community.