Corporate Product Diversification, Refocusing and Development of Functional Businesses in France (1993-2000)

In spite of prevalent views among economists and business management experts in favour of corporate focus development strategies still lack empirical evidence. The concepts of diversification and product refocusing of firms businesses are difficult to express with quantitative indicators, as the prevailing classification of economics activities hardly measures crucial notions such as core businesses or core competencies. However, we cannot do without this classification of economic activities, as we aim at an exhaustive description of the degree of diversification of medium-sized and big firms. Thus the first objective of this paper is to improve existing nomenclature-based indexes of diversification in two ways: first, we identify functional businesses (whose presence in firms does not strictly correspond to diversification) and remove them from diversification indexes. Second, we incorporate a measure of product heterogeneity into our index of diversification in the following way: the more atypical the portfolio of businesses of a given firm is relatively to other firms in our database, the more diversified it is. Functional businesses being removed, firms on French territory are not very diversified and this low average level of diversification did not change significantly between 1993 and 2000, as some firms diversified whereas others got more focused. The weight of functional businesses in multiple-output production has grown during the nineties, all the more as firms became more diversified and/or more international.