Working Paper Cnr-Ceris, N° 17/2013

Elena Santanera
National Research Council of Italy
CNR-CERIS
Institute for Economic Research on Firm and Growth

Collegio Carlo Alberto - via Real Collegio, n. 30
10024 Moncalieri (Torino) – ITALY

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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.

Keywords: firm diversification, technology, market segmentation, simulation process.

JEL Codes: L1, L6 

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