Diversification patterns : theory and evidence for the food industry in the U.K. and Italy
The thesis is organized around two closely interlinked questions: (a) At a theoretical level, is it the case that diversification activities driven by economies of scope should lead to a positive correlation between diversification and profitability (b) Empirically, can a theoretical model account for observed patterns of diversification activities over time and across countries Following a general discussion of the main issues related to diversification in chapter 1, chapter 2 answers to the first question in the negative. In a model where diversification is induced by the presence of synergies, it is shown that diversified firms may be on average the less efficient firms on the market and may survive only due to the presence of synergies. This is consistent with the results of earlier empirical studies, showing no correlation between diversification and profitability. Therefore the empirical part of the thesis focuses on patterns of diversification rather than on the link with profitability. Models that attribute diversification to the presence of 'economies of scope' suggest that diversification patterns are determined by technological factors, that are stable over time and over countries. In chapter 3 a specific sector (food and drink) is analysed in the U.K. over a long time period (1962- 1986) and the U.K. experience is compared to that of Italy (in 1986) through a standard loglinear model and a separate analytical approach. The main results are as follows: (1) U.K. diversification patterns are remarkably stable over time; (2) Italian diversification patterns appear quite different from those of the U.K., whether in 1962 or in 1986. Since overall diversification levels for the U.K. in 1962 are similar to those in Italy in 1986, it seems that patterns of diversification may be induced by country specific factors. In order to unravel the difference between U.K. and Italian experience in chapter 4 a series of case studies of specific industries and firms is carried out. They suggest that in the Italian economy, where the distribution sector is poorly developed, large firms can enjoy a strong advantage by building up their own distribution networks. While the case studies indicate the possible importance of several other factors, it is this factor that appears to be the single most important influence underlying the difference between the U.K. and Italy.