Vertical integration as a source of competitiveness: The case of ferrochromium in southern Africa

This paper investigates the role of vertical integration between chrome ore mines and ferrochromium smelters in the location of ferrochromium producti on capacity in South Africa and zimbabwe. Vertical integrations important i n understanding the increasing competitive position of these two countries as observations show that an increasingly larger share of the global market has been coming from integrated producers. The paper argues that the incre ased vertical integration between mines and smelters in South Africa and Zi mbabwe has led to a lower cost of chrome ore as an input compared with othe r producers. Underlying this hypothesis is the basic tenet that, more likel y than not, production will take place where the costs are lowest. The pape r concentrates on high carbon ferrochromium (HCFC) production in market eco nomy countries (MEC). Using an ordinary least squares model, the study test s the relationship between low chrome ore costs and vertical integration sh ows a statistically significant relationship, These findings partially supp ort the view that the control of sources of chrome ore is a major source of competitiveness.