National Productivity Week 27th November 2023 | Visit Website

A diverse community of
leading experts, policymakers
and practitioners

The Institute’s key research themes
are led by ten academic partners
spread across the UK.

Businesses are crucial to solving
the UK’s productivity problems.

We’re a UK-wide research
organisation exploring what
productivity means for business

Businesses are crucial to solving
the UK’s productivity problems.


Vertical Integration and Firm Productivity

The business model articulates the customer value proposition, how value is created, the means of value capture, and the partners in the value network. Hence, the business model is the “architecture” that provides the bridge between the value created for customers and the value captured by the business in terms of profit. Hence, the design of the business model could have an impact on productivity.

This study investigates the design of business models by examining the degree of vertical integration and firm productivity among UK manufacturing firms between 2002 to 2018. We present a novel approach to identifying UK manufacturing firms’ activities based on the firms’ annual reports filed under the requirements of the Companies Act 2006.

Our approach allows us to trace the degree of vertical integration within the manufacturing firms over the sample period. According to this information, we classify firms into four different types: standalone, integrated upstream (e.g. R&D, design or engineering), integrated downstream (e.g., sales, marketing and distribution) and fully integrated. This detailed classification allows us to empirically test a set of hypotheses and investigate if there are varying effects on productivity depending on the types of vertical integration. Moreover, we focus on the contingent effect of vertical integration by investigating the moderating roles of product complexity on the relationship between vertical integration and firm productivity.

Project Lead Chander Velu (University of Cambridge)

Collaborator Myungum Kim (University of Cambridge)

University Of Cambridge