Within industry diversification and firm performance: evidence from semiconductors industry

The evolution of Semiconductor Industry, from 1947 to 2005 Aim of the paper The first paper looks at the lessons that the semiconductors industry history provides for researches on corporate strategy and industrial organization; it aims to explore the key drivers of the industry, from 1947 to 2005 and to look for peculiar strategies applied by semiconductor firms around the world to deal with competition, to encourage innovation, to gain a competitive advantage and to support the entrance of new regions into the industry. Methodology Given the importance of the industry in the worldwide landscape, several researchers have proposed different perspectives of analysis dealing with some emerging issues characterizing the industry (Braun and McDonald, 1978; Langlois and Steinmuller, 1999;Mathews, 1997; Macher, Mowery and Hodges,1998; Hall and Ziedonis, 2001; Dosi, 1984; Nelson, 1962; Tilton, 1971; Malerba, 1985; Saxenian, 1994). The work provides an explorative analysis of the industry combining information from analysts, companies’ reports and specialized journals. Main results Despite the industrial globalization, the United States is still the leading technological standard by defining new architectures and also new markets, whereas the rest of the world is concentrating on manufacturing and design capabilities. Within-business diversification and growth rate: empirical evidence from semiconductors industry Aim of the paper The second paper examines the effect of within-business diversification on business performance for firms operating in a high technological context that is semiconductors industry. In particular, it looks at tha semiconductor business unit operating in distinct product macro segments, recognizing all the possible semiconductors’ product lines, through the aggregation of devices into related subgroups sharing knowledge, capabilities and competences. Literature and hypotheses Consumer needs (Bagozzi 1986; Cravens and Woodruff 1986; Talayasum, Hassan and Goldhar 1987; Kotler 1986; Talayasum, Hassan and Goldhar 1987; Nakanishi and Cooper, 1974): Hypothesis 1: Diversification positively affects business’ sales growth rate; Transferring skills or expertise and sharing activities (Gupta and Govindarajan, 1986; Porter, 1987) Hypothesis 2a: Diversification within each Product line positively affects business’ sales growth rate Hypothesis 2b: Diversification within each Product line positively affects each product line’s sales growth rate Research setting The setting concerns the population of worldwide semiconductor industry, through the period 2002-2004. Our sample includes data drown from iSuppli’s 2005 Annual Competitive Landscaping Tool dataset, that provides detailed coverage of the worldwide semiconductor market by company, product category and/or region. We specify the following regression equation: ￼ where the growth rate of business unit ij at time t is explained by a vector of lagged covariates, ￼, encompassing explanatory variables measured at the business unit level, a vector of lagged firm’s characteristics, ￼, used as control variables, and an error term. We use Fixed Effect panel Data Model for the econometric analysis. Main results The industry is very heterogeneous; the relation between diversification strategy and business performance depends on the product strategies applied over the different level of segmentation. Then, firms operating in semiconductor business have to look both at the overall business, and at the different product strategies applied in each product line. The Determinants of Business Unit Competitive Position: Evidence from the ICs Market1 Aim of the paper The major purpose of the third paper is to examine the effect of within-business diversification, innovation leadership and rivals’ behavior on the competitive position of units operating in a high technological context. In this paper we direct our attention to the integrated circuits market. To deal with the high differentiation of IC components, we rely on a taxonomy largely adopted by research firms, industry associations, and semiconductors producers. The taxonomy is organized in a hierarchical structure similar to the Standard Industrial Classification system used to classify industries. Literature and hypotheses Diversification: Hp1: A higher level of firm's diversification across product segments positively affects the market share of the focal business unit Own Innovative Behavior (Geroski and Mazzucato, 2002; Banbury, 1995; Kleinschmidt, 1991; Kimura, 1990): Hp2: Own introduction of incremental product innovations in the focal product segment positively affects the market share of the focal business unit; Hp3: The introduction of incremental product innovations by business units belonging to the same company (might) positively affects the market share of the focal business unit Competitors’ Innovative Behavior (Ferrier, 1999; Roberts, 2001): Hp4: The introduction of incremental product innovations by rival business units within the focal product segment negatively affects the market share of the focal business unit; Hp5: The introduction of incremental product innovations by rival business units in other product segment might positively affects the market share of the focal business unit. Research setting We deal with 7854 new product announcements released by 758 business units associated with 310 IC producers, over the period 1999-2003; product announcements have been matched with market shares accruing to each business unit. Results We found that whereas a higher level of overall firm’s diversification does not significantly enhance the competitive position of business units it controls, when the variable measuring total diversification is decomposed in a related and an unrelated component, a high level of diversification in each product category positively and significatively affect the focal business unit performance. The introduction of new products by sister units in adjacent segments enhances the competitive position of the focal unit. Contrary to our expectations, our empirical analysis does not support the hypotheses concerning the competitor’s innovative behaviour, that seem to require further investigations. The present work is intended to be limited to the analysis of the semiconductor industry; however, possible replications to different industries and possible comparisons can suggest further research. The validity of a taxonomy to classify products and the availability of detailed data for each segment within Semiconductor Business, in fact, make all the dissertation innovative within product line literature.