Evaluating Diversification Patterns Within EU Companies
For a long time diversified firms have played a major role in both production and distribution activities in almost all industrialised countries. It is hardly surprising then that answers to questions such as why they exist and what effects they have on economic welfare are truly important to the modern economy, especially in the light of the changing patterns of the 21-st century.
This research proposal has two main sections. The first part of this paper attempts to provide a detailed picture of the extent of diversification within the EU’s leading firms. The second part illustrates a study of the determinants of diversification patterns. In part, this duplicates the EU previous studies which used North American firm/industry data. Yet, the study referenced in this paper differs from earlier analyses in two respects: it illustrates cross-member state differences to test for alternative behavioural hypotheses; and it uses a much richer set of variables measuring specific assets for which the study computes the net effect on the likelihood of linkages among industries.
2. Introduction: statement of research hypothesis
The main questions voiced in this research proposal are whether a company should diversify and at which stage in the company’s development the diversification becomes reasonable or profitable. In the Penrose (1959) tradition, the firm is seen as a collection of specific assets that can be exploited in related activities. In the managerial theory of the firm (Marris, 1964), managers pursue diversification strategies to maximize growth and to reduce risks. More recently, the concept of the multi-product firm has been fully incorporated into neoclassical production theory and the implications of diversified entry, multi-market contacts, tie-in sales, etc. have become important issues in modern industrial organization theory. On the empirical side, the focus has progressively widened from the measurement of the extent of diversification and its general causes, to the study of diversification patterns and directions.
The main purpose of this research proposal is to lay out the general structure of the future report, shedding light on the need for further research in the field of diversification among EU companies. One should note that only limited research, especially quantitative analysis, exists in this field, prompting us to suggest that further studies should be made in this regard. Hence, the future paper, though constrained by time and resources, will attempt to contribute to the analytical body of research on the diversification patters and their significance within the EU corporations. The focus is made on the comprehensive examination of the available literature and scholarly studies with the aim of producing a report that may be used by future researchers and analysts.
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