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Technology and demand mechanism in firm diversification strategies.An experimental method to discriminate the fundamental drivers

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Abstract

An essential part of any firm’s corporate strategy is the choice of the business portfolio through which to compete. When the portfolio’s decision involves more than one business, firms are said to implement a diversification strategy, which is put into action through the firms concomitant entry in different market segments. It implies that the nature of the market segmentation affects the firms’ differentiation degree. The aim of this paper consists in exploring a method for determining the market segmentation that is most informative to understand firms’ diversification strategies, or in other words the market segmentation that most clearly reveals about firms’ main diversification drivers. Given that each business can be described according to a set of business characteristics and by using different levels of detail, in the perspective of understanding firm diversification strategies, it is fundamental to determine the directions in the space of business characteristics along which it is “mostly convenient” to claim the business diversity and which is the “best” level of aggregation at which assess the businesses boundaries. This paper proposes an experimental method to do it. In particular, it empirically discerns which of two particular criteria – functional versus technological – mostly enrich our understanding of the diversification strategies adopted by Italian plastic processing machinery suppliers, finding out the most instructive level of aggregation of the market segmentation – namely the best segment dimension – to investigate the firms diversification strategies.

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  • Elena Santanera, 2013. "Technology and demand mechanism in firm diversification strategies.An experimental method to discriminate the fundamental drivers," CERIS Working Paper 201317, CNR-IRCrES Research Institute on Sustainable Economic Growth - Torino (TO) ITALY - former Institute for Economic Research on Firms and Growth - Moncalieri (TO) ITALY.
    • Handle: RePEc:csc:cerisp:201317
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    1. Michael Gort, 1962. "Diversification and Integration in American Industry," NBER Books, National Bureau of Economic Research, Inc, number gort62-1.
    2. Patel, Pari & Pavitt, Keith, 1997. "The technological competencies of the world's largest firms: Complex and path-dependent, but not much variety," Research Policy, Elsevier, vol. 26(2), pages 141-156, May.
    3. Rosenberg, Nathan, 1963. "Technological Change in the Machine Tool Industry, 1840–1910," The Journal of Economic History, Cambridge University Press, vol. 23(4), pages 414-443, December.
    4. David J. Teece, 2003. "Towards an Economic Theory of the Multiproduct Firm," World Scientific Book Chapters, in: Essays In Technology Management And Policy Selected Papers of David J Teece, chapter 15, pages 419-446, World Scientific Publishing Co. Pte. Ltd..
    5. Michael Gort, 1962. "Introduction to "Diversification and Integration in American Industry"," NBER Chapters, in: Diversification and Integration in American Industry, pages 3-7, National Bureau of Economic Research, Inc.
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    More about this item

    Keywords

    firm diversification; technology; market segmentation; simulation process;
    All these keywords.

    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L6 - Industrial Organization - - Industry Studies: Manufacturing

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