Hamira, Magister Student, Faculty of Economics, Sriwijaya University, Indonesia

ORCID ID: 0000-0003-3672-5540
e-mail: hamira834@gmail.com

Robiani B. Professor, Doctor (Economics), Faculty of Economics, Sriwijaya University, Indonesia

ORCID ID: 0000-0002-9098-4319
e-mail: robiani64@yahoo.com

Mukhlis, Doctor (Economics), Faculty of Economics, Sriwijaya University, Indonesia

ORCID ID: 0000-001-8883-4488
e-mail: mukhlis@fe.unsri.ac.id

Vertical Integration in Agro-Industry: Eco-Friendly Gambier Products

Abstract. Introduction. Textile dyeing on fabrics and clothing causes environmental pollution and health problems. There is an innovation of natural coloring using gambier in the Gambo Muba fabric industry and the garment industry in Indonesia. Gambier farmers supply natural dye raw materials. Then through the supply chain of the Gambo Muba fabric industry and the garment industry, it causes vertical integration in the gambier agro-industry. This study uses primary data from 39 vertically integrated companies in the gambier agro-industry, including the gambier rubber industry, the Gambo Muba fabric industry, and the garment industry. The data was then analyzed using descriptive qualitative.

Purpose. This study analyzes the relationship between vertically integrated industries, including the transaction costs between them, their impact of vertical integration on added value, and their profitability.

Results. Vertically integrated industries have low transaction costs. The impact of vertical integration on the gambier agro-industry adds to the chain of economic activities that can increase added value and profits.

Conclusions. The impact of vertical integration can reduce transaction costs, especially the supplier coordination cost component, distributor cost component, inter-company lobbying costs components. The benefits of vertical integration in the gambier agro-industry are increasing high added value, profit levels, decreasing environmental pollution, and agro-industry sustainability.

Keywords: vertical integration; added value; profit.

References:

1. Akarslan, F. & Demiralay, H. (2015). Effects of Textile Materials Harmful to Human Health. International Conference on Computational and Experimental Science and Engineering (ICCESEN), 128, 407-408. https://doi.org/10.12693/APhysPolA.128.B-407 [in English].
2. Alanezi, A. M. (2018). Impact of Pollution Generated by the Textile Industry on Health and Environment. Journal of University Studies for Inclusive Research, 2(3), 160-176 [in English].
3. Andreou, P. C., Louca, C., & Panayides, P. M. (2016). The Impact of Vertical Integration on Inventory Turnover and Operating Performance. International Journal of Logistics Research and Applications, 19(3), 218–238. https://doi.org/10.1080/13675567.2015.1070815 [in English].
4. Arachchige, U. S. P. R., Vithanage, K. D., Wadanambi, R. T., Wandana, L. S., Wijerathne, W. M. M. P., & Wimalarathne, N. R. G. S. S. (2019). Environmental Impacts of Textile Industry In Sri Lanka. International Journal of Scientific & Technology Research, 8(09), 251-253 [in English].
5. Asrol, M., Marimin, Machfud, Yani, M., & Taira, E. (2020). Supply Chain Fair Profit Allocation Based on Risk and Value Added for Sugarcane Agro-industry. Operations and Supply Chain Management, 13(2), 150-165 [in English].
6. Benmehaia, A. M., & Brabez, F. (2016). The Empirical Factors Determining Vertical Integration in Algerian Food Manufacturing Sector. European Scientific Journal, ESJ, 12(28), 252-262 [in English].
7. Carillo, F., Caracciolo, F., & Cembalo, L. (2016). Vertical Integration in Agribusiness . Is it a Bargain? Proceedings of the 52nd sidea conference, October. https://doi.org/10.13128/REA-18624 [in English].
8. Carlton, D. W., & Perloff, J. M. (1994). Modern Industrial Organization (Second Edi). Harper Collins College Publishers [in English].
9. Deng, M., & Zhang, A. (2020). Effect of Transaction Rules on Enterprise Transaction Costs Based on Williamson Transaction Cost Theory in Nanhai , China. Sustainability, 12. https://doi.org/doi:10.3390/su12031129 [in English].
10. Failisnur, S. (2017). Reuse of Liquid Waste from Textile Dyeing with Natural Dyes Gambier (Uncaria Gambir Roxb.) for Cotton Yarn Dyeing. ARPN Journal of Engineering and Applied Sciences, 12, 5313-5318 [in English].
11. Figueroa, J. L., Mahmoud, M., & Breisinger, C. (2018). The Role of Agriculture and Agro-Processing for Development in Jordan (Issue September). https://doi.org/10.2499/1024320700 [in English].
12. Grant, R. B. (2016). Contemporary Strategy Analysis (8th ed.). Wiley [in English].
13. Grau, A., & Reig, A. (2019). The Industry Effect and The Decision to Integrate Vertically in a Crisis Context. The European Journal of Finance, 25(16), 1591-1605. https://doi.org/10.1080/1351847X.2019.1628795 [in English].
14. Hadi, S., Wahyudi, M. I., Hazmi, M., & Prayuginingsih, H. (2018). Assessment of Value Added and Development Opportunity of Agroindustry Activity based on Marine Resources in Sub District of Panarukan, District of Situbondo. E3S Web of Conferences 52 (CSSPO), 00046, 1-9. https://doi.org/https://doi.org/10.1051/e3sconf/20185200046 [in English].
15. Hamdaoui, M., & Bouayad, B. (2019). Determinants and Effects of Vertical Integration on the Performance of Moroccan Manufacturing. Athens Journal of Mediterranean Studies, 5(1), 57-78 [in English].
16. Hamidah, M., Yusra, A. H., & Sudrajat, J. (2015). Analisis Nilai Tambah Agroindustri Kripik Ubi di Kota Pontianak. Jurnal Social Economic of Agriculture, 4(1987), 60-73 [in English].
17. Harrigan, K. R. (2001). A Framework for Looking at Verical Integration. The Journal of Business Strategy [in English].
18. He, D., & Deng, X. (2020). Price Competition and Product Differentiation Based on the Subjective and Social Effect of Consumers ’ Environmental Awareness. International Journal of Environment Research and Public Health, 17, 9-12. https://doi.org/10.3390/ijerph17030716 [in English].
19. Islam, M. R., & Mostafa, M. G. (2018). Textile Dyeing Effluents and Environment Concerns – A Review. Journal Environment, Science, & Natural Resources, 11, 131-144 [in English].
20. Jaganathan, V., Cherurveettil, P., Chellasamy, A., & Premapriya. (2014). Environmental Pollution Risk Analysis and Management in Textile Industry: A Preventive Mechanism. European Scientific Journal, 7881(August), 480-486 [in English].
21. Jordeva, S., Kertakova, M., Zhezhova, S., Golomeova-Longurova, S., & Mojsov, K. (2020). Dyeing of Textiles with Natural Dyes. Tekstilna Industrija, 68(4), 12–21. https://doi.org/10.5937/tekstind2004012j [in English].
22. Klüppel, L. (2021). The Role of Transaction Costs on Vertical Integration and Innovation: A General Equilibrium Approach [in English].
23. Kothari, C. R. (2013). Research : Methodology Methods and Techniques (3rd ed.). New Age International Publishers [in English].
24. Kumar, A. (2016). Environmental Pollution by Textile Industries. 20–26 [in English].
25. Lipczynski, J., Wilson, J., & Goddard, J. (2005). Industrial Organization : Competition, Strategy, Policy (2nd ed.). Prentice-Hall [in English].
26. Mukherjee, S. (2015). Environmental and Social Impact of Fashion : Towards an Eco-friendly , Ethical Fashion. International Journal of Interdisciplinary and Multidisciplinary Studies (IJIMS), 2(3), 22–35. http://www.ijims.com [in English].
27. Nadia, R. F., & Cerquera, D. (2017). The Role of Vertical Integration in Input Procurement. Business and Management Studies Journal, 5(1), 26–35 [in English].
28. Paraschiv, D., Tudor, C., & Petrariu, R. (2015). The Textile Industry and Sustainable Development : A Holt–Winters Forecasting Investigation for the Eastern European Area. Sustainability, 7, 1280-1291. https://doi.org/10.3390/su7021280 [in English].
29. Parvin, F., Islam, S., Urmy, Z., Ahmed, S., & Islam, A. S. (2020). A Study on the Solutions of Environment Pollutions and Worker’s Health Problems Caused by Textile Manufacturing Operations. Journal of Scientific & Technical Research, 28(4), 21831–21844 [in English].
30. Prasertwattanakul, Y., & Ongkunaruk, P. (2018). The Analysis of a Vertically Integrated Organic Rice Company : a Case Study in Thailand. International Food Research Journal, 25(April), 481-486 [in English].
31. Priscilla, L., Balakrishnan, A., & Chauhan, A. K. (2017). A Study on the Performance of Agricultural Sector in India. Indian J. Agric. Reserach, 51(3), 282–286 [in English].
32. Priyadarshi, R., & Routroy, S. (2018). Vertical Integration Level Selection for Value Addition of Herbal Products : A Farmer’s Perspective. Materials Today: Proceedings, 5(9), 18354–18361. https://doi.org/10.1016/j.matpr.2018.06.174 [in English].
33. Ralston, P. M., Blackhurst, J., Cantor, D. E., & Crum, M. C. (2015). A Structure – Conduct – Performance Perspective of How Strategic Supply Chain Integration Affects Firm Performance. Journal of Supply Chain Management, 50(2). https://doi.org/10.1111/jscm.12064 [in English].
34. Šajn, N. (2019). Environmental Impact of The Textile and Clothing Industry : What Consumers Need to Know. European Parliamentary Research Service, January. https://www.europarl.europa.eu/RegData/etudes/BRIE/2019/633143/EPRS_BRI(2019)633143_EN.pdf [in English].
35. Samuelson, P. (1980). Economics. Mac Grawhill Publishing Co. Tokyo [in English].
36. Sanal, & Kumar, K. S. (2017). An Analysis of Value Addition in Agro Products and Its Impact on the Export Potentials of India. International Journal Management, 8(4), 23–30 [in English].
37. Tey, Y. S., & Arsil, P. (2021). Vertical and Horizontal Integration in the Profitability of Malaysian Boiler Firms. Tropical Animal Science Journal, 44(1). https://doi.org/http://doi.org/10.5398/tasj.2021.44.1.115 [in English].
38. Todorova, T. (2010). Vertical Integration in High-Transaction Cost Sectors: The Case of the Bulgarian Pharmaceutical Industry. Journal of Advanced Research in Management, 1(2), 127–138 [in English].
39. Toprak, T., & Anis, P. (2017). Textile Industry’s Environment Effect and Approaching Cleaner Production and Sustainability, an Overview. Journal of Textile Engineering & Fashion Technology, 2(4), 429–442 [in English].
40. Ütebay, B. (2020). Textile Wastes: Status and Perspectives. In P. Çelik (Ed.), Waste in Textile and Leather Sectors (p. Ch. 3). IntechOpen. https://doi.org/10.5772/intechopen.92234 [in English].
41. Zhang, D. (2013). The Revival of Vertical Integration : Strategic Choice and Performance Influences. Journal of Management and Strategy, 4(1), 1–14 [in English].
42. Zulfiandri, Z., Maarif, M. S., Hermawan, A., & Hardjomidjojo, H. H. (2017). Biaya Transaksi dan Benefit Cost pada Integrasi Vertikal Rantai Nilai Agroindustri Kakao Skala Kecil Biaya Transaksi Dan Benefit Cost pada Integrasi Vertikal Rantai Nilai Agroindustri Kakao Skala Kecil. Jurnal Manajemen & Agribisnis, 14(3), 187–197. https://doi.org/10.17358/jma.14.3.187 [in English].