VerticalIntegrationintheTaiwan
AquacultureIndustry
Tzong-RuLee (Jiun-Shen)
Yi-Hsu
Cheng-JenLin
KongkitiPhusavat
NiroteSinnarong
The study aims to improve the distribution channels in the Taiwan
aquaculture industry through a better vertical integration. This study
is derived from a need to improve the distribution performance of
agricultural-based industries in response to increasing food demands
in Asia and elsewhere. Based on a four-by-eight matrix derived from
both a value chain and a service profit chain, thirty different strategies
are developed. This development is based on key success factors and
strategies for vertical integration interviewed and cited in the litera-
tures.ThefindingsareidentifiedbyapplyingtheGrayRelationalAnal-
ysis(gra ).Forthisstudy,thekeysuccessfactorsforaquaculturewhole-
sale markets include the communication, integration and cohesion of
opinionwithinthewholesalemarket;governmentsupport;andmutual
trustbetweenmembersoftheverticalintegrationscheme.Thesuitable
vertical integration strategies are an improved safety and hygiene in-
spectionofaquacultureproducts,accuracyofaquacultureproductcat-
egorization, andprecisioninproductweighing.
Key Words: aquacultureindustry, greyrelational analysis (gra ),
channels integration
jel Classification:m30 ,r41
DrTzong-RuLee(Jiun-Shen)isaProfessorintheMarketing
Department,National ChungHsing University, Taiwan.
DrYi-Hsu isanAssociateProfessorintheBusiness Administration
Department,National FormosaUniversity, Taiwan.
Cheng-JenLin isagraduatestudentat theNationalChungHsing
University, Taiwan.
KongkitiPhusavatisanAssociateProfessorintheIndustrial
Engineering Department,KasetsartUniversity, Thailand.
NiroteSinnarong isaPhDstudentattheNationalChungHsing
University, Taiwan.
Managing GlobalTransitions9 (4 ):393 –414

394 T.-Z.Lee, Yi-Hsu, C.-J.Lin, K.Phusavat,andN.Sinnarong
Introduction
Improving the performance of agricultural-based industries has gained
more attention from practitioners and researchers alike for the past
decade. This is due to continuous economic expansion and popula-
tion growth in Asia, especially China and India (McKay2007 ). Based
on his viewpoint, the operational performance needs to be constantly
improved across all agricultural products, including crops, livestock,
and fishery. Timmer (2010 ) argued that, although many Asian coun-
tries such as Thailand and Vietnam, have significantly increased their
exports of agricultural goods around the world, there was a need for
operational improvements to ensure an effective and efficient farm-to-
table chain (i.e., farmer-to-consumer integration). This improvement
has taken place in many shapes and forms such as crop yield, contract
farming, organic farming, traceability, Good Agricultural Practice, pro-
cessing,andmoreimportantlydistributions.
In fact, the urbanization (i.e., more than300 million in China and
170 million in other Asian countries such as Indonesia, the Philippines,
Vietnam, Thailand,and Malaysiawill belivingin the cities by2020 )has
led to a call for a comprehensive review and assessment in how agricul-
tural foods should be distributed to consumers, including wholesalers,
retail outlets, supermarkets, and restaurants (Lem et al.,2004 ; Timmer
2010 ).The fooddistributionshouldresult inlesscostandhigher quality
tocustomers.Notonlyisthereaneedtodealwiththetrendinurbaniza-
tion,butonemustrecognizetheongoingchangeinademographicfactor
thatistakingplaceinmanyregions,especiallyinEastandSoutheastAsia
(withtheexceptionofIndonesia,Malaysia,andthePhilippines).
According to Manasserian (2005 ) and McKay (2007 ), the median age
intheAsia-Pacificregionwouldincreasefrom29 to36 +yearsoldin2020
while the proportion of the aging population will be greatly increased.
These increases are expected to impact the region’s food consumption
patternsandbehaviors.Meatconsumptionwouldprobablydeclinewhile
thedemandforfreshfish,fruits,andvegetableswouldgraduallyincrease.
Several initiatives have been made previously in many countries to in-
creasetheflowsoffreshproducetoconsumersasfastandcheaplyaspos-
sible. They are: e.g., the use of technology to improve schedules, route
planning,anddistribution channels,andtheapplication ofa coolchain
to increase a product’s shelf life. Moreover, the vertical integration con-
cept has been revisited and re-examined repeatedly during the past ten
ManagingGlobalTransitions

VerticalIntegrationintheTaiwanAquacultureIndustry 395
Aquaculturist
Wholesaler
Processor
Wholesaler
Retailer
Aquaculturist
Wholesaler
Processor
Wholesaler
Retailer
Aquaculturist
Wholesaler
Processor
Wholesaler
Retailer
Pure marketexchange Verticalcooperation Verticalintegration
figure1 Verticalintegration(adaptedfromLemetal.2004 )
years as a way to respond to the higher demand for food around the
word,includinglocalandregionaldemandsamongAsiacountries(Lem
etal.,2004 ;McKay2007 ;Timmer2010 ).
The nature of agricultural-based industries in Asian countries has
pointed to the need to reexamine how effective and efficient the verti-
cal integration has been in practice. Many firms in these industries are
considered to be Small and Medium Enterprises orsme s. They are re-
quiredtoworkandcooperatecloselytogetherasindividualfirmssimply
cannot meet the overwhelming demands. Vertical integration indicates
how companies, especiallysme s, are integrated in a supply chain (Lem
etal.,2004 ).These companiesare united through acommonownership
orpartnershiparrangement.Each memberofthe supplychain typically
producesadifferentproductorservice.Butwhencombined,theirprod-
uctsandservicesaimtosatisfyacommonneedofconsumers.Itiswidely
practised in processed foods (e.g., starch and sugar) and fishery-related
products.Besidetheverticalmarketingchannelsasconsidered,theaqua-
cultureproductflowcanfollowvariousmarketchannelsfromtheaqua-
culturalist to the finalconsumer.Therefore, these marketchannels were
divided into three main stages: the producer stage, the wholesaler stage
includingprocessing,andtheretailerstage(Lemetal.2004 ;seefigure1 ).
BackgroundtotheProblem
One-thirdofthetotalquantityandvalueofseafoodproductssoldinTai-
wan originates from fish farms. Traditionally, the fish farming distribu-
tion channel consists of – from upstream to downstream – the farmers,
Volume 9 · Number 4 · Winter 2011

396 T.-Z.Lee, Yi-Hsu, C.-J.Lin, K.Phusavat,andN.Sinnarong
local sales representatives, wholesale markets, retailers and consumers.
The demand for healthy and safe food in Taiwan has increased in re-
cent years. The up-, mid- and downstream operations of the local fish
farming industry have striven to meet this increased demand. Further,
increasedverticalintegrationandcoordinationbetweenproductionand
saleshavesimplifieddistributionchannels,whichisfavourableformain-
tainingthe freshnessandnutritionalvalueofaquacultureproducts.
Wholesale markets provide facilities and managementso that suppli-
ersandsalesmencanconducttheirbusinessinahighly specialized fash-
ion.Largescaletradingandwidedispersionachievesorderlytransporta-
tion and sales, regulation of supply and demand and promotion of fair
trade practices. The aquaculture wholesale markets, located midstream
of production and sales channels, provide functions of price formation,
concentration and distribution of aquaculture products, and serve as a
bridgebetweensupplyandsales.Theseinstitutionshandlemostproduc-
tionandareoperatedbymanagerswithextensiveexperienceinsalesand
handling of seafood products; thus, they are well-suited to lead the pro-
cess ofverticalchannelintegration. Therefore,this study startsfromthe
management level of the aquaculture product wholesale markets to in-
vestigate applicable strategies for vertical channel integration. The aims
ofthisstudyareto determinethe keysuccessfactorsnecessary foraqua-
cultureindustryintegration,andtodevelopviablestrategiesforchannel
integration based onthe characteristics ofthe fishfarmingindustry and
verticalintegration.
LiteratureReview
Toinvestigatethemajorsuccessfactorsandstrategies,aliteraturereview
for this study focuses on several aspects of vertical channel integration,
including systems, channel integration, introduction of key success fac-
tors,structureofstrategicanalysis,valuechainandserviceprofitchain.
definitionoftheverticalintegrationsystem
‘Vertical Integration’ suggests that firms internalize trade by establish-
ingtheirownsystemsandcompletetheintermediateinputandproduc-
tion of finished products to replace trading behaviour in the open mar-
ket (Coase1937 ).Thisso-calledverticalintegrationcombinestechnically
differentprocessessuchasproduction,distribution,salesandothereco-
nomic practices under the jurisdiction of a single organization. Thus,
a company integrates upward with suppliers which control sources of
ManagingGlobalTransitions

VerticalIntegrationintheTaiwanAquacultureIndustry 397
supply as well as downward with wholesalers or retailers which control
where thegoods aresold (Porter1985 ).Verticalintegration allowsprod-
ucts and services to integrate up-, mid- and downstream of operation
procedures toward the sources of raw material as well as delivery and
distribution networks (Williamson1979 ; Hill and Jones1998 ;Waterson
1984 ;Glennetal.2000 ;Dawson2003 ).
channelintegrationanditskeysuccessfactors
A ‘marketing channel,’ also known as a ‘distribution channel,’ consists
of a group of interconnected organizations tasked with enabling prod-
ucts orservices to be used orconsumed by consumersor industry users
(Kotler and Armstrong 1994 ; Stern, El-Ansary, and Conghlan 1996 ).
From a management perspective, the marketing channel is defined as
a contractual relationship between organizations to accomplish distri-
bution tasks through managed operations. These joint organizations
mayincludemanufacturers, distributors, retailersandmanyotherfirms
involved in the marketing channel before goods are finally delivered to
industry users orconsumers(Kotlerand Armstrong1994 ;Berman1996 ;
Rosenbloom1999 ). To survive and succeed in an industry, a firm must
excelinthree tosix specialized aspects ofthat industry,andthekey suc-
cess factors that determine whether it is successful must be achieved in
orderto succeed. The so-called ‘special parts’ arekey areaswhere a firm
must perform effectively to succeed. To maintain growth, a firm must
makeeffortsinthesefewkeymanagementareas;otherwise,theexpected
goal will not be achieved (Daniel1961 ). In order to succeed, an enter-
prise must have certain key advantages or assets and perform relatively
well so that a competitive advantage is realized (Aaker1984 ; Ellram and
Hendrick1995 ;Lester1998 ).Thecompetitivenessoftechnologyorassets
ownedbyanenterprise canbemeasured byanalyzingthe advantagesof
the enterprise and the coordination between key success factors. If the
advantages of the enterprise reflect well on theksf of the enterprise,
then it has a competitive advantage (Wu1988 ; Simchi-Levi, Kaminski,
andSimchi-Levi2003 ).
valuechainandserviceprofitchain
Porter (1985 ) proposed the idea of a ‘value chain,’ indicating an enter-
prise that performs a series of ‘value-creating activities’ such as valuable
products, labour to upstream customers such asraw materials suppliers
and end buyers of products or labour. It describes the accumulation of
Volume 9 · Number 4 · Winter 2011

398 T.-Z.Lee, Yi-Hsu, C.-J.Lin, K.Phusavat,andN.Sinnarong
customer value in each operation. The value chain is the presentation
of total value mainly consisting of value operation activities and profit.
Value is the price a customer pays for the product or labour purchased.
Total value reflects the price and sales of products or labour, and the
valueoperation activity isthe activity thatcontributesto the valueof fi-
nal products or labour. Profit is the difference between total value and
the cost paid for the execution of value operation activities. Porter di-
vided the valuechain operation activities ofan enterprise into two cate-
gories, major activities and supporting activities, based on the technical
orstrategiccharacteristics.
Heskett et al. (1994 ) suggested that the service profit chain is con-
structed through a series of value exchanges. Service quality in an or-
ganization affects employee satisfaction, and employee satisfaction im-
proves productivity, retention and loyalty. As a result, able workers are
morewillingtostay,andthecostsofrecruiting,hiring andtrainingnew
employees are minimized. Therefore, to improve customer satisfaction,
thesatisfactionofemployeesmustbesurveyedandimprovedasmuchas
possible.Astheprofitsandgrowthofanenterpriseareaffectedmainlyby
customerloyalty,andcustomerloyaltyisdirectlyinfluencedbycustomer
satisfaction,bothofwhichareindirectproportion.Thisstudyindicated
that the service quality of a firm is closely related to employee satisfac-
tion, and employee satisfaction greatly influences customer satisfaction
and loyalty. The Heskett study further revealedthat the most important
factors affecting employee satisfaction are: work, training, promotion
opportunities,respect,teamworkandwhetherthefirmisgenuinelycon-
cerned aboutthe welfare ofemployees.Thus, enterprises devotingmore
efforttothese factorscanmaintainagood employer-employeerelation-
ship.Thepurposeofthisstudyistoidentifyverticalchannelintegration
strategies in the Taiwan fish farming industry by using a four-by-eight
matrix representing the major activities of the value chain and the ser-
viceprofitchain.
greyrelationalanalysis
Deng (1982 ) pioneered grey system theory in1982 . Grey system theory
(gst ) is concerned with solving problems that involve uncertainty or
systems with incomplete information. Using system relational analysis,
modelconstruction,forecasting,ordecisionanalysis,greysystemtheory
can effectively resolve various problems that involve uncertainty, multi-
plevariablesordiscretedata.
ManagingGlobalTransitions

VerticalIntegrationintheTaiwanAquacultureIndustry 399
gst has received attention from scholars of all academic circles and
many practitioners. Especially, successful applications ofgst in several
scientific fields have won the affirmation and attention of international
academic spheres. At present, many scholars are occupied in research
and applications of grey systems in many countries, regions and inter-
national organizations, such as in England,usa , Germany, Japan, Aus-
tralia,Canada,Austria,Russia,Taiwan,HongKong,theUnitedNations,
Turkey,SouthAfrica,andsoon(Liu,Forrest,andVallee2009 ).
Grey relational analysis (gra ) was originated bygst . This method
has become an effective method for solving problems with high uncer-
tainty.gra hasbeendevelopedtostudy problemsofsmallsampleswith
poorinformation,withsuccessfulapplicationsinindustry,energy,trans-
portation, meteorology, geology, hydrology science, medicine, military
science, business, agriculture, and so on (Salmeron2010 ). For the ad-
vantagesofthismethod, SongandShepperd(2011 )statedthatgra pro-
vides an alternative approach to identify the correlations among factors
without traditional statistical assumption (e.g. data distribution, errors
distribution,andsufficientdata).
Thecalculationprocessforgra isexpressed asfollows(Deng1982 ).
Let X be a factor set of grey relation, X ={x
0 , x
1,...,x
m
},wherex
0 ∈
X denotes the referential sequence; x
1 ∈ X represents the comparative
sequence,andi=1 ,...,m.Bothx
o
andx
1 includenelementsandcanbe
expressed asfollows.
x
0 = (x
0 (1 ),x
0 (2 ),...,x
0 (k),...,x
0 (n)) (1 )
x
i
= (x
i
(1 ),x
i
(2 ),...,x
i
(k),...,x
i
(n)) (2 )
Where i =1 ,...,m; k =1 ,...,n; n∈ N, and x
0 (k) and x
i
(k)arethe
numbers of referentialsequences and comparativesequences at point k,
respectively. Inpractical applications,the referentialsequencecan be an
ideal objective and the comparative sequences are alternatives. The best
alternative corresponds to the largest degree of grey relation. If the grey
relationalcoefficient(grc )ofthereferentialsequencesandcomparative
sequencesatpointkisγ(x
0 (k),x
i
(k)),thenthedegreeofgreyrelationfor
x
0 andx
i
willbeγ(x
0 ,x
1 )whenthefollowingfourprerequisitessatisfy:
1 . Normalinterval:
0 <γ (x
0 ,x
i
)≤1 ,
γ(x
0 ,x
i
)=1 ⇔ x
0 = x
1 ,
γ(x
0 ,x
i
)=0 ⇔ x
0 ,x
1 ∈ ø.
Volume 9 · Number 4 · Winter 2011

400 T.-Z.Lee, Yi-Hsu, C.-J.Lin, K.Phusavat,andN.Sinnarong
2 . Dualsymmetry:
x,y∈ X,
r(x,y)= r(y,x)⇔ X ={x,y}.
3 . Wholeness:
x
i
,x
j
∈ X,
γ(x
i
,x
j
 γ(x
j
,x
i
).
4 . Approachability:
With|x
0 (k)−x
i
(k)|gettinglarger,γ(x
0 (k),x
i
(k))becomessmaller.
The essential condition and quantitative model for grey relation are
produced based on the above four prerequisites. Thegrc of the refer-
ential sequences and comparative sequences at point k is expressed as
follows:
γ(x
0 (k),x
i
(k))=
=
min
i∈I
min
k
|x
0 (k)−x
i
(k)|+ζ
max
i∈I
max
k
|x
0 (k)−x
i
(k)|
|x
0 (k)−x
i
(k)|+ζ
max
i∈I
max
k
|x
0 (k)−x
i
(k)|
,( 3 )
whereζ isadistinguished coefficientwithavaluebetweenzeroandone.
Theζ can be adjusted to suit practical requirements and it is normally
set at0 .5 .
The grey relational grade (grg ) standsfor the degree of grey relation
between the referential sequences and comparative sequences is defined
asagrc meanandcanbeexpressedasfollows:
γ(x
0 ,x
i
)=
1 n
n
 i=1 γ(x
0 (k),x
i
(k)). (4 )
Alargergrg correspondstoastrongerdegreeofgreyrelationbetween
thecomparativeandreferentialsequences.
Research Method
Given the research purpose and results of the literature review, the de-
sign ofthis studyincludedthree parts: the research process, the research
objectiveandquestionnairedesign.
theresearchprocess
First, experts and specialists were interviewed at several large and rep-
resentative aquaculture wholesale markets throughout Taiwan to clarify
distribution, deliveryand salesinthe industry. Afterdata collection and
ManagingGlobalTransitions

VerticalIntegrationintheTaiwanAquacultureIndustry 401
a literature review, the major activities in the value chain and service
profit chain were reviewed to develop a questionnaire for the aquacul-
ture wholesale managers. After the questionnaires were retrieved, grey
relational analysis was utilized to elucidate the key success factors and
strategiesidentifiedbyindustrymanagers.
researchsurvey
In principle,questionnaires were sentto the fish markets where seafood
isbought andsold.The investigationfocusedonmanagementlevelper-
sonnel in these markets. The questionnaires regarding vertical integra-
tion in the fish farming industry were delivered to fifty fish markets
throughout Taiwan (except those on the outer islands). Ten copies were
senttobigwholesalemarketsinTaiwanandfivecopiesweresenttosmall
wholesale markets. Three hundred questionnaires were distributed, of
which100 copies were sent to these big markets and200 to small mar-
kets.
questionnairedesignframework
This study made a value chain categorization on the operation process
in the wholesale markets of aquaculture products: (1 ) Major activity:1 .
Logistics: product inspection and weighing, categorization and classifi-
cation,productcuttingandprocessing,icemaking.2 .Production:prod-
uctpreservation,auction(manualandcomputerized).3 .Logistics man-
agement: product storage, freezing and refrigeration, auction ground
cleaning, sewage treatment.4 . Marketing and sales: advertising, selec-
tion of sales channels, space leasing. (2 ) Support activity:1.Purchasing:
fish cage purchasing, polymer cases.2 . Technology development: auc-
tion equipment improvement and auction system upgrade.3.Human
resource management: recruiting, employment and training of admin-
istrative, auction and marketing personnel.4 . Corporate infrastructure:
general administrationmanagement,planning, finance,accounting, of-
ficial business and quality control. This study emphasized business ac-
tivities related to up-, middle- and downstream integration, which are
the major operations of aquaculture product wholesale markets, as well
as the major activity in the value chain. Human resources, which is the
onlyrelevantsupportingactivity, wasinvestigatedaswell.
The service profitchainconsistsofaseries ofvalueexchangesandin-
cludes eight aspects:1 . internal service quality,2 . employee satisfaction,
3 . employee loyalty,4 . employee productivity,5 . external service values,
Volume 9 · Number 4 · Winter 2011

402 T.-Z.Lee, Yi-Hsu, C.-J.Lin, K.Phusavat,andN.Sinnarong
Revenue and Profit 29 30 31 32
Customer Loyalty 25 26 27 28
CustomerSatisfaction 21 22 23 24
OutsiderServiceValue 17 18 19 20
Employee Productivity 13 14 15 16
Employee Loyalty 91 01 11 2
EmployeeSatisfaction 5678
Inside Service Quality 1234
Logistic
Incoming
Production Logistic
shipping
After sales
service
figure2 Thefour-by-eight matrixrepresenting themajoractivities ofvaluechains
andserviceprofitchains
6 . customer satisfaction,7 . customer loyalty, and8 . income and profit
growth. The principal process of the service profit chain is the follow-
ing:highqualityserviceandpoliciesprovidedbyanorganizationtoem-
ployees(internalservicequality)elevateemployeesatisfaction;employee
satisfaction leads to loyal and productive employees; ‘external service
value’iscreatedbysatisfied,loyalandproductiveemployeeswhodeliver
productsorservicestocustomers.Customersatisfactiondependsgreatly
on the service received by customers, and customer loyalty comes from
satisfaction. Loyalty promotes earnings and growth in corporate profit.
Through the service profit chain, this study investigated how wholesale
marketscanimprovethese eight aspectsofoperations.
Aftercategorizingthemajorbusinessoperationsofaquacultureprod-
uct wholesalers, four major activities were identified: logistic incoming,
production,logisticshipping,marketingandaftersalesservice.Theser-
viceprofitchainconsistsofaseriesofvalueexchangesandincludeseight
aspects. As figure2 shows, this study employed a four-by-eight matrix
representingthemajoractivitiesofvaluechainsandserviceprofitchains.
The four employee-related aspects included in the matrix were inter-
nal service quality, employee satisfaction, productivity and loyalty. The
four majoractivities in the valuechain proposed by Porter were used to
create a four-by-fourmatrix with cells numbered from1 to16 .Thefour
aspects related to customers outside the organization, ‘external service
values, customer satisfaction, customer loyalty and income and profit,’
and the four major activities of the value chain were used to create an-
othersquarematrixwithcellsnumbered from17 to32 .
ManagingGlobalTransitions

VerticalIntegrationintheTaiwanAquacultureIndustry 403
Relevantdomesticandinternationalliteraturesregardingverticalinte-
gration were reviewed in addition to interviews with managers ofaqua-
culture wholesale markets in Taipei, Taichung, Changhua, Puhsin and
Chiayi. As table1 shows, the literature review and interviews yielded
thirty strategies forimprovementofverticalchannelintegration in each
cell.Howthese strategieswerederivedwillbeelaboratedwiththe aspect
of ‘inbound logistics’ as an example: In ‘inbound logistics,’ this study
proposed2 variables, processing and checking and acceptance. This as-
pect was converted for these2 variables to develop a vertical integra-
tionstrategyforthefishfarmingindustry.The‘processing’variablepro-
posed by Azzam and Wellman (1992 )inastudyoftheporkindustry
is favourable to vertical integration of inbound logistics; this study de-
veloped a ‘product cutting (level1 processing)’ strategy. Glenn et al.
(2000 ) proposed the ‘checking and acceptance’ variable in their study
of the dairy industry. Categorization, classification, hygiene and safety
inspection and weighing accuracy were identified as favourable to ver-
tical integration of logistic incoming. Three strategies developed in this
study were ‘accuracy of product categorization and classification,’ ‘en-
hanced product hygiene and safety inspection’ and ‘product weighing
accuracy.’Fourstrategieshavebeendevelopedforinboundlogistics,one
from variable ‘processing’ and three from variable ‘acceptance,’ and all
helped improvethe operationsof cells17 ,21 ,25 and29 ; the six strategies
developedfrom‘logisticshipping’helpedimprovetheoperationsofcells
19 ,23 ,27 and31 ; the fourstrategies developedfrom‘marketing andafter
service’ helped improve the operations of cells20 ,24 ,28 and32 ; finally,
the twelve strategies developed from ‘internal supporting activities of a
firm,’ which are mainly related to employee training, welfare and inter-
nal service quality, helped improve the operations of cells1 through16 .
From this four-by-eight matrix, strategies that helped improve the op-
erations of each cell were used as descriptions in the questionnaire, and
the questionnairewas used to gather managementlevelinput regarding
strategiesforthesewholesalemarkets.
Results
Research results are discussed from perspectives of key success factors
and vertical integration strategies. Three hundred questionnaires were
distributed, and164 were retrieved, of which eight were invalid and156
werevalid.Theretrievalratewas55 %.The surveyperiod extendedfrom
13 to27 April,2006 .Most(66 %)surveysubjectswerelowerrankingman-
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404 T.-Z.Lee, Yi-Hsu, C.-J.Lin, K.Phusavat,andN.Sinnarong
table1 Thestrategiesforverticalchannelintegration
Inboundlogistics
Processing AzzamandWellman(1992 ) 1 Product cutting (level1 processing) 17 ,21 ,25 ,29
Checkingand acceptance Glenn et al. (2000 ) 2 Accuracyofproduct categorizationandclassification
3 Enhancedhygieneandsafetyinspection
4 Product weighingaccuracy
Processing
Auction Expert opinionofaquaculture
product wholesalemarkets(2006 )
5 Fairandopenproduct auction 18 ,22 ,26 ,
30
Package AzzamandWellman(1992 ) 6 Smallpackagetreatment
Processing 7 Product process treatment (level2 processing)
Productpreservation Dawson(2003 ) 8 Enhanced product preservationlevel
Logisticshipping
Distributionaccuracy Sternetal.(1996 ) 9 Distributingproducts toaccuratelocations 19 ,23 ,27 ,31
Reliability 10 Productpreservationindistributionprocess
Speed 11 Speedy distribution
Onschedule 12 Productdistributiononschedule
Customizedservice 13 Distributingsmallpackages
14 Customizeddistributionservice
Marketingand aftersales service
Servicedrawbacksand
amendments
Tso (2002 ) 15 Servicedrawbacksandamendments(Forexample:
Productdecomposedandshortage)
20 ,24 ,28 ,
31
ManagingGlobalTransitions

VerticalIntegrationintheTaiwanAquacultureIndustry 405
CollaborationMarketing 16 CollaborationMarketingpromotion
Emergencytreatment ability 17 Managementcapabilityofemergencydistribution
Knowingcustomer’s need Vandeven(1976 ) 18 Preciselyandspeedily understandingthe marketde-
mand
Reservation Expert opinionofaquaculture
productwholesalemarkets(2006 )
19 Promotingreservationtrade
Developmentofsystematic Sharma(1995 ) 20 Currentinformationofproductamount
informationinteraction
21 Supplychaininformationofpurchasingfrombuyers to
sellers
22 Obtainingthecollaborateinformationtechnology
supportedbyuniversityandsoftwarecorporation
Human resource
Employeetraining Heskettetal.
(1994 )
23 Trainingemployees aboutauctionknowledgeand
techniques
13 –16
24 Trainingemployees abouttheknowledgeandtech-
niquesofproduct categorizationandclassification
Employee welfares 25 Enhancedemployees’ welfare andsalary 1 –12
26 Sharingtheprofitofcorporationwithemployees
Employeesinternalservice
quality
Rust et al. (1996 ) 27 Integrationandcohesionofopinionwithintheorgani-
zation
28 Focusonpromotionfairnessofemployees
29 Respecting employees
30 Providingjobsecurityforemployees
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406 T.-Z.Lee, Yi-Hsu, C.-J.Lin, K.Phusavat,andN.Sinnarong
agers,andmany(41 %)interviewees had15 ormoreyearsofworkingex-
perience.
reliabilityandvalidityanalysis
Reliabilityistheaccuracyorprecisionofameasurementinstrument,and
themeasureconsistsofstabilityandconsistency.Inadditiontotheliter-
aturereview,thisstudy compiledcommentsfrommanagersofaquacul-
tureproductwholesalemarketsandfromindividualfishfarmers.There-
fore,thefindingsofthisstudyareconsideredreliable.Invalidityanalysis,
this study adopts the Cronbach alpha coefficient to determine internal
consistency;thevalidityofthekeysuccessfactorsforverticalintegration
of the fish farming industry channel was0 .931 . Considering the relia-
bility of the vertical channel integration strategies for each aspect, the
alpha coefficient was0 .840 for logistic incoming,0 .783 for production,
0 .843 for logistic shipping,0 .830 for marketing and after sales service,
and0 .947 for human resources. As suggested by Guielford (1965 ), if the
Cronbach alpha coefficient is greater than0 .7 , the reliability is high. Ac-
cordingtotheabovecalculations,allalphacoefficients were higher than
0 .7 ,indicatinghighreliabilityinthisquestionnaire.
greyrelationalanalysis
Greyrelationalanalysiswasadoptedinthisstudy,andoption5 –‘agreed
strongly’ – in the reference sequence was chosen as the basis for mea-
suringtherelationshipbetweensuccessfactorsandstrategiesforvertical
channel integration. The grey relational method was used to determine
the relationship (sequence weight) of each factor. A higher grey relation
indicates greater importance, indicating that managementlevel person-
nelinthefishmarketsagreedwithandvaluedthisparticular‘keysuccess
factor for vertical channel integration’ and ‘vertical channel integration
strategy.’ Tables2 and3 present the results of this analysis in order of
magnitude.
grayrelationalanalysisofthekeysuccessfactors
forverticalchannelintegration
Eachquestionwasanalyzedusingthegrey relationalmethod(themaxi-
mumofgrayrelationis1 andtheminimumis0 .Afterarrangingthecal-
culatedvaluesindescendingorder,thegreatergreyrelationswerehigher
in the gray relation sequence, indicating that managers of fish markets
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VerticalIntegrationintheTaiwanAquacultureIndustry 407
table2 Keysuccessfulfactoranalyseswithgreyrelationalanalysesofchannelvertical
integration
(1)( 2)( 3)( 4 )
Internalcommunication
oforganization
Communication,integrationandcohesion
ofopinionwithinthewholesalemarket
0 .6854 1
Governmentsupport Governmentsupport andcooperation 0 .6827 2
Trust Mutualtrustbetween membersofthe
verticalintegrationscheme
0 .6618 3
Fairness Fairnessofprofitandriskdistribution
between membersoftheverticalintegration
scheme
0 .6372 4
Mutualassistindifficulty Mutualassistindifficulty between members
ofthevertical integrationscheme
0 .6310 5
Classificationofclear
target
Mutualconsentofprovidinghealthyand
safetyfoodbetween membersofthe vertical
integrationscheme
0 .6292 6
Organizingcommitteeof
verticalintegration
Thecommitteeorganizedbymembersofthe
verticalintegrationschemepromotesvertical
integration
0 .6235 7
Outsidepressure Influenced andpushedbyoutsidepressure 0 .6164 8
Understanding the
demandofpartners
Understandingthe demandofpartners in
verticalintegration
0 .6111 9
Relationship
commitment
Mutualcommitmentofrelationship 0 .6042 10
Expectation ofmutual
relationship
Expectation ofmutualrelationshipbetween
membersoftheverticalintegrationscheme
0 .5964 11
Developingsystematical
informationinteraction
Mutualcooperationofinformationsystem 0 .5576 13
Flexibility Keepingmutualrelationshipwithflexibility 0 .5448 14
Inventory management Stableproduct supplybetween membersof
theverticalintegrationscheme
0 .5430 15
notes Column headings are as follows: (1 ) dimensions, (2 )questionitems,(3 )grey
relationaldegree, (4 )greyrelationalrank.
placedmoreimportanceonthe questionandconsideredit akeysuccess
factorforverticalintegration offishfarmingindustrychannels.
After calculation, the grey relations were displayed in number lines
grouping approximate values together. The lines and grouping are dis-
played in figure3 . The right-hand-side of lines grouping indicating the
grey relationsascloseto1 which showed that these factors are more im-
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408 T.-Z.Lee, Yi-Hsu, C.-J.Lin, K.Phusavat,andN.Sinnarong
table3 Grey relationalanalysesforvertical channelintegrationstrategies
(1)( 2)( 3 )
Enhancedhygieneandsafetyinspection 0 .8246 1
Accuracyofproduct categorizationandclassification 0 .7997 2
Product weighingaccuracy 0 .7971 3
Enhanced product preservationlevel 0 .7723 4
Providingjobsecurity foremployees 0 .7700 5
Respecting employees 0 .7630 6
Productpreservationindistributionprocess 0 .7581 7
Comm.,int.andcohesionofopinionwithinthewholesalemarket 0 .7489 8
Speedy distribution 0 .7469 9
Fairandopenproduct auction 0 .7445 10
Focusonpromotionfairnessofemployees 0 .7272 11
Enhanced employees’welfare andsalary 0 .7218 12
Sharingtheprofitofcorporationwithemployees 0 .7175 13
Productdistributiononschedule 0 .7015 14
Trainingemployeesabouttheknowledgeandtechniques ofproduct
categorizationandclassification
0 .6991 15
Trainingemployeesaboutauctionknowledgeandtechniques 0 .6850 16
CollaborationMarketingpromotion 0 .6849 17
Current informationofproduct amount 0 .6826 18
Distributingproducts toaccuratelocations 0 .6797 19
Promotingreservationtrade 0 .6724 20
Preciseandspeedy understanding ofthe marketdemand 0 .6710 21
Smallpackagetreatment 0 .6591 22
Product cutting(level1 processing) 0 .6577 23
Servicedrawbacksandamendments(Forexample:Product
decomposedandshortage)
0 .6512 24
Obtainingthecollaborateinformationtechnologysupported by
universityandsoftwarecorporation
0 .6493 25
Distributingsmallpackages 0 .6415 26
Customizeddistributionservice 0 .6327 27
Product processtreatment (level2 processing) 0 .6067 28
Supplychaininformationonpurchasingfrombuyers tosellers 0 .6063 29
Managementcapabilityofemergencydistribution 0 .6008 30
notes Column headings are as follows: (1)strategies,(2 ) grey relational degree, (3 )
greyrelationalrank.
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VerticalIntegrationintheTaiwanAquacultureIndustry 409
 0 .68549
 0 .6827
 0 .6618
 0 .6372
 0 .6310
 0 .6292
 0 .6235
 0 .6164
 0 .6111
 0 .6042
 0 .5964
 0 .5591
 0 .5576
 0 .5448
 0 .5430
figure3 Keysuccessfulfactoranalyseswithnumber linesofgreyrelationaldegree
portant. The left-hand-side indicating the grey relations as close to0 ,
whichshowedthatthesefactorsarenotsoimportant.Thisstudydivided
the fifteen aspects of measurement into three groups. From right to left,
the grey relation values are0 .6854 ,0 .6827 and0 .6618 represent ‘internal
communicationsofanorganization,’‘governmentsupport’and‘mutual
trust,’respectively.
The sequenceof grey relationsrevealedthat thefirstgroup, which in-
cludes ‘internal communication of an organization,’ ‘government sup-
port’ and ‘mutual trust’ are the vertical channel integration success fac-
torsmostvaluedbymanagersoffishmarkets.Thisfindingindicatesthat
the fish markets must reach a mutual understanding within their orga-
nization before participating in the vertical integration system for fish
farmingindustrychannels,sothatinternalmanagementandemployees
have the same objective in upcoming external integration actions. Due
to the limited resources within the fish farmingindustry, resource input
and government support are required for successful establishment and
maintenanceofaverticalchannelintegrationsystem.Toachievevertical
channel integration, one additional success factor is crucial in the first
group: trust. The mutual trust between partners in a channel can only
be established under the premise that the members are not opportunis-
tic and will not compromise the benefits of other channel partners to
attain short-term profits. Only then can a long-lasting relationship and
efficientverticalintegration beachieved.
greyrelationalanalysisforverticalchannel
integrationstrategies
After calculation, the grey relations were displayed in number lines
grouping approximate values together. Figure4 depicts the lines and
grouping.
Thirtystrategiesweredividedintosixgroups.Forexample,fromright
toleft,thegreyrelationswere0 .8246 ,0 .7997 and0 .7971 ,representing‘en-
hanced product hygiene and safety inspection,’ ‘product categorization
and classification accuracy’ and ‘product weighing accuracy’ as the first
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410 T.-Z.Lee, Yi-Hsu, C.-J.Lin, K.Phusavat,andN.Sinnarong
 0 .8246
 0 .7997
 0 .7971
 0 .7723
 0 .7700
 0 .7630
 0 .7581
 0 .7489
 0 .7469
 0 .7445
 0 .7272
 0 .7218
 0 .7175
 0 .7015
 0 .6991
 0 .6849
 0 .6826
 0 .6797
 0 .6724
 0 .6710
 0 .6591
 0 .6577
 0 .6512
 0 .6493
 0 .6415
 0 .6327
 0 .6067
 0 .6063
 0 .6008
figure4 Channelvertical integrationstrategies withnumber linesofgreyrelational
degree
group.Lookingatthesequencingofgreyrelations,thefirstgroup,which
includes‘enhancedproducthygieneandsafetyinspection,’‘product cat-
egorizationandclassificationaccuracy’and‘productweighingaccuracy,’
were vertical channel integration strategies that fish market managers
considered most feasible for achieving vertical channel integration. The
three strategies in the first group are all aspects of ‘inbound logistics,’
indicating that fish market managers considered them important. Cate-
gorization and classification of products, hygiene and safety inspections
and accuracy of weighing are all front-end tasks in the value chain of
aquaculture product wholesale markets. Subsequent operations of ver-
tical channel integration, ‘production, logistic shipping, marketing and
aftersalesservice’runsmoothlyiffront-endapplicationstrategiesofthe
value chain are intensified and most of the efforts are directed towards
stabilizingthemostimportantfactorof‘fishfarmingproduct quality.’
Discussion
ThisstudyconductedaninterviewwiththeFishMarketingOrganization
of Taiwan in cooperation with related fish farmer associations,sme s,
and interviewees with wholesalers firms were conducted to evaluate the
suitability of the key factors. The results found that the key factors are
drivingthe improvementneedsandthe importantstrategic areastosat-
isfy with the market demands. First of all, the safety/hygiene as well as
the product understanding/ group were the overwhelming factors that
had influenced the need to improve the operational performance at the
Taiwan Fish Markets. Thus, weight and pricing accuracy also received a
considerable amount of attention as the business and transaction were
continuous during the operating hours. Some of the key strategic areas
tobeunderconsiderationincludedbetterschedulingandmoreavailable
pricinginformation.
Tofacilitateverticalchannelintegration,thisstudyinvestigatedthekey
success factors and feasible strategies for vertical integration. Manage-
mentlevelofaquacultureproductwholesalemarketswasselected asthe
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VerticalIntegrationintheTaiwanAquacultureIndustry 411
survey subject. The analytical results indicated that the success factors
considered crucial by management-level officers of aquaculture prod-
uct wholesale markets are: communications, integration and cohesion
ofopinionswithin thewholesalemarkets,thefull supportfromgovern-
ment,andmutualtrustbetween membersoftheverticalchannel.Tofa-
cilitate vertical integration of the aquaculture industry channel, mutual
consent should first be established within an organization so that inter-
nal management and employees work cooperatively to achieve external
integration. Due to the limited resources available to the fish farming
industry,resourceinputandgovernmentalsupportarerequiredforsuc-
cessful establishment and maintenance of vertical channel integration
systems.Toachieveverticalchannelintegration, oneadditionalkeysuc-
cess factor is required in the first group, and that is trust. The mutual
trust between each of the partners in a channel can only be established
under the premise that the members are not opportunistic and will not
compromisethe benefits of other channel partners forshort-term prof-
its. A long-lasting relationship can then be achieved, and vertical inte-
grationofthechannelwillberealized.
For effective strategies of vertical integration of the fish farming in-
dustry,the linesgroupingweredevelopedforthegrey relations,andap-
proximate values were grouped after calculation by the grey relational
method. Thirty strategies for vertical integration of the fish farming in-
dustry developed in this study were divided into six groups. The first
groupconsistsofstrategiesthatmanagersofaquacultureproductwhole-
sale markets considered most crucial and helpful for vertical integra-
tion of the fish farming industry. All strategies in the first group focus
on ‘inbound logistics’ and are the front-end tasks in the value chain
of aquaculture product wholesale markets. Consumers can have access
to healthy and fresh farming products only if the ‘aquaculture product
quality’ starts at the front end of the value chain and continues at the
middleandrearendsofthechain.
Fromthemanagementpointsofview,thekeysuccessfactorsfromthis
study can be taking into accountfor the policy makingof Taiwan aqua-
culture product wholesale markets. The policy makers can be consid-
ered asthe keysuccess factorsforaquaculturewholesalemarkets, which
include the effective communication, government support, and mutual
trust between members of the vertical integration scheme. From the re-
sults of this empirical study, the policy makers can be more precise, for
thesuitableverticalintegrationstrategiesareanimprovedsafetyandhy-
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412 T.-Z.Lee, Yi-Hsu, C.-J.Lin, K.Phusavat,andN.Sinnarong
gieneinspectionofaquacultureproducts,accuracyofaquacultureprod-
uctcategorization,andprecisioninproductweighing.Inadditiontothe
Taiwan aquaculture industry analyzed in this study, the authors hope
thattheresultsofthisstudycanserveasareferenceforpromotingverti-
calintegrationinotherindustriesorinothercountries.
Conclusion
The study focuses on applying the vertical integration concept to help
improve the operational performance in the Taiwan aquaculture indus-
try. This study is derived from the ongoing trends in urbanization and
theagingpopulationthathavechangedfoodconsumptionpatternsand
behaviour, especially higher demandsforfresh fish, fruit, and vegetable.
Based on a four-by-eight matrix derived from both a value chain and a
serviceprofitchain,thirtydifferentstrategiesaredeveloped.Thefindings
are identified by applying the Grey Relational Analysis (gra ). For this
study, the success factors for wholesale aquaculture markets include the
communication,integration andcohesion ofopinionwithin the whole-
salemarket;governmentsupport;andmutualtrustbetweenmembersof
the vertical integration scheme. The suitable vertical integration strate-
giesareanimprovedsafetyandhygieneinspectionofaquacultureprod-
ucts, accuracy of aquaculture product categorization, and precision in
product weighing. Finally, an initial comparison is also made with the
report published by Thailand’s Fish Marketing Organization, which in-
dicatessimilarfindings.
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