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The Technological Determinants of Entry through Diversification


Research objectives and content

The question I want to address is: why do firms diversify in particular directions? This question involves a quite different approach from the ones in the literature. It assumes that firms do not diversify at random, but they diversify with larger probability in particular industries or product groups. I am interested in studying the idiosyncratic, firm-specific determinants, especially those connected to the technology used by the firms. The theoretical framework, which will justify the empirical analysis assumes that firms are heterogeneous. The firm can be interpreted as a set of competencies; together, they constitute its knowledge base, which represents the pool of resources available to the firm to perform its normal activities.

We can identify three main groups of competencies:
(1) technological capabilities,
(2) internal capabilities, and
(3) external capabilities.

I want to concentrate on the technological components of the knowledge base and on their relevance in determining the directions of diversification. If the basic intuition were correct, we would expect to find that the knowledge bases of the firms entering the same industry are closely related. Therefore an econometric analysis could give us an insight on the technological knowledge that the firms in a specific industry must posses in a specific period (because they better conform to that specific industry characteristics in that specific period) and how they change. This requires two levels of analysis: one related to the firm technological base and one related to its production activity. I will need data for both, but for the first I also need a characterisation. This requires the identification of the areas of research in which the firm is engaged. Since it is not possible to do it directly, one possible solution is to use patent data. Patents are classified in technological classes, which are by no means alternative to the SIC classes (this is not a technology based classification system). More precisely, the technological base of the firm could be represented through its distribution of patents over the technological classes.

Training content (objective, benefit and expected impact)

The contact with the host institution will surely be very stimulating for the theoretical and empirical development of the research, since important work on related fields has been carried out here. The possibility to work in an institution like STICERD will be very important for me and will also give me the opportunity to acquire the theoretical and technical skills necessary to carry out this project. This will especially be true thanks to the presence of Prof. John Sutton, which assures a large and valuable experience in the analysis of industries and firms' strategies, and that of an Econometrics group, to which I can refer for any problem regarding the empirical analysis.

Links with industry / industrial relevance (22)


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