Are EU Leading Firms Returning to Core Business? Evidence on Refocusing and Relatedness in a Period of Market Integration

• Published in: Review of industrial organization Vol. 27; no. 2; pp. 125 - 145
• Main Authors: RONDI, LAURA, VANNONI, DAVIDE
• Format: Journal Article
• Language: English
• Published: Boston Springer 01.09.2005; Springer Nature B.V
• Subjects: Beverage industries; Business; Business strategies; Business structures; Business studies; Capital markets; Competition; Cost control; Diversification; Diversified companies; Economic integration; Economic theory; Efficiency; Enterprises; Europe; European integration; European Union; Extractive industries; Industrial growth; Industrial market; Industrial organization; Industrial output; Industrial sectors; Industry; Integration; Manufacturers; Manufacturing; Manufacturing industries; Market analysis; Market shares; Organizational behavior; Product diversification; Productivity; Studies; Trade liberalization; Europe
• ISSN: 0889-938X; 1573-7160
• DOI: 10.1007/s11151-005-8322-y

This paper tests, for 108 diversified EU manufacturing leaders faced by the EU integration shock (1987-1997), if firms responded to increased competitive pressure by readjusting their industry-mix around a core of related activities. Our results show that, in spite of limited reduction in diversification, firms pursued strategies of related constrained diversification by expanding the output of industries related to the core. We also find that complementarity amongst the firm's operations -i. e., sharing common intermediary products or common output markets – drives the refocusing. The effect is stronger for highly diversified firms. Our findings suggest that EU leaders are moving toward a more efficient use of their resources.