In this section, I provide several examples to illustrate this classification process.
6.4.1 Example One: Shan Dong Dong-E E-Jiao CO., Ltd
First the first example, I use the company, Shan Dong Dong-E E-Jiao CO., Ltd. It is a listed company on Shenzhen Stock Exchange. Its revenue percentage breakdown in 2001 is provided in Table 6-3.
In this example, the Specialization Ratio can be obtained from the largest revenue proportion of a single business. In this case, the business ‘plastic products’(SIC code
3089) accounts for the largest proportion (0.8460). Hence, the Specialization Ratio is 0.8460.
Next, I consider businesses with the same 2-digit SIC as related. I then sum the revenue proportions for businesses sharing the same 2-digit SIC code. The results are listed in Table 6-4. I can now compute the Related Ratio, as derived from the largest revenue proportion of a 2-digit business. Here it is 0.8460 from the businesses with SIC code 30.
The calculation of the Vertical Ratio requires me to first identify if a firm’s business is in manufacturing, which is marked by 2-digit SIC codes in the range of 20 to 39. In this example, the company has businesses in SIC codes 30, 28 and 38; hence it is engaged in manufacturing. After summarizing the revenue percentages from the businesses mentioned above, I searched SIC codes to identify if there exists any vertical link between different business sectors, which requires me to search for the manufacturing SIC codes one by one according to the criteria of table 6-2. First, for the SIC code as 30; I will search for whether there are any businesses that fall into the category of SIC code 516. Next, for the SIC code of 28, I will search for businesses with the SIC code of 512. The same rationale guides the search for 508 as vertically related to 38.
In my search, I found that there are business sectors with the SIC code of 516, which is vertically related to 30, and 512 which is vertically related to 28. Hence I obtain
two Vertical Ratios for this company: the first is 0.8880 (0.8460 from 30 plus 0.0420 from 516) and the second is 0.1107 (0.0923 from 28 plus 0.0184 from 512). I take the larger one (0.8880) as this firm’s Vertical Ratio. According to the approach explained in Figure 6-2, I classify this firm into the category of Dominant-Vertical. By calculating as mentioned above, I obtain the result in Table 6-5.
6.4.2 Example Two: Gezhouba CO., Ltd
The second example utilizes Gezhouba Co., Ltd, which is listed on the Shanghai Stock Exchange. The details of its revenue percentage breakdown in 1999 are listed in Table 6-6.
The firm’s Specialization Ratio is 0.8382 (Table 6-6), as this is the largest revenue percentage of a single business – Heavy construction (SIC code: 1629).
After summing up the revenue percentages of business sectors with the same 2-digit SIC code, I obtain the detailed information in Table 6-7. From the table I find the Related Ratio as the largest revenue proportion of a business at the 2-digit SIC code level. It is 0.8382 from the business of Heavy Construction, Ex. Building (SIC code:
16).
Following the approach discussed above, I calculate the firm’s Vertical Ratio.
According to the standard described above, the company does not have any businesses in the manufacturing sector, so I judge its vertical ratio to be zero. The
sum of this firm’s different ratios is listed in Table 6-5. And according to the rules shown in Figure 6-2, this firm is classified into the category of Dominant-Unrelated.
6.4.3 Example Three: XinJiang TianYe Stock CO., Ltd
The third example is constructed using a firm listed on the Shanghai Stock Exchange.
XinJiang TianYe Stock Co., Ltd is company that has businesses in agriculture, construction and manufacturing. Its revenue breakdown in 1999 is detailed in Table 6-8.
First, following the methodology described earlier, I quote the largest revenue percentage of a single business as the Specialization Ratio of the company. That is 0.4757 from the business of agricultural chemicals (SIC code: 2879).
As to the Related Ratio, details of revenue breakdowns at the level of 2-digit SIC code are listed in Table 6-9. Clearly, I find that the Related Ratio from the largest revenue percentage as 0.5266, from the business of chemicals and allied products (SIC Code: 28).
Still using the same method, I come to the calculation of Vertical Ratio. As with the second example, I find no vertical related chain in all of this firm’s business sectors.
The Vertical Ratio is consequently zero, which is the same as in the second example.
All the ratios for the three examples are provided in Table 6-5. According to the rules
shown in Figure 6-2, XinJiang TianYe Co., Ltd is classified into the category of conglomerate.