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Firm Diversification in the European Union: New Insights on Return to Core Business and Relatedness

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Abstract

According to ex-ante expectations, one effect of the increased competitive pressure within the Single Market was to drive firms to reduce diversification and refocus on their core business. This paper addresses two main questions: the extent and the purpose of multi-product strategies. Using a large database of 223 leading manufacturing firms in the EU, we document whether EU leaders reduced diversification over the decade 1987-1997. We then investigate if firms have de-diversified by re-focussing around a core of related activities, testing for alternative measures of "core" and "relatedness". Our results confirm that firms readjusted corporate structures around one (or more) core(s) of related activities.

Suggested Citation

  • Laura Rondi & Davide Vannoni, 2002. "Firm Diversification in the European Union: New Insights on Return to Core Business and Relatedness," CERIS Working Paper 200208, Institute for Economic Research on Firms and Growth - Moncalieri (TO) ITALY -NOW- Research Institute on Sustainable Economic Growth - Moncalieri (TO) ITALY.
  • Handle: RePEc:csc:cerisp:200208
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    References listed on IDEAS

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    1. Davide Vannoni, 1998. "The diversified firm: non formal theories versus formal models," CERIS Working Paper 199806, Institute for Economic Research on Firms and Growth - Moncalieri (TO) ITALY -NOW- Research Institute on Sustainable Economic Growth - Moncalieri (TO) ITALY.
    2. 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..
    3. Rubin, Paul H, 1973. "The Expansion of Firms," Journal of Political Economy, University of Chicago Press, vol. 81(4), pages 936-949, July-Aug..
    4. Lichtenberg, Frank R., 1992. "Industrial de-diversification and its consequences for productivity," Journal of Economic Behavior & Organization, Elsevier, vol. 18(3), pages 427-438, August.
    5. Davies, Stephen & Rondi, Laura & Sembenelli, Alessandro, 2001. "European Integration and the Changing Structure of EU Manufacturing, 1987-1993," Industrial and Corporate Change, Oxford University Press, vol. 10(1), pages 37-75, March.
    6. repec:ccp:journl:v:19:y:2001:i:8:p:1315-1346 is not listed on IDEAS
    7. Teece, David J. & Rumelt, Richard & Dosi, Giovanni & Winter, Sidney, 1994. "Understanding corporate coherence : Theory and evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 23(1), pages 1-30, January.
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    More about this item

    Keywords

    Firm diversification; European integration; Return to Core;

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • F15 - International Economics - - Trade - - - Economic Integration

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