The Role of Agglomeration and Technology in Shaping Firm Strategy and Organization

Abstract

Over the last few years a growing number of contributions have shown that the presence of business groups, i.e., sets of firms legally distinct but belonging to the same owner(s), is significant. From a theoretical point of view, this presence poses the question of whether the group or the single legal unit should be considered as the elementary unit in economic analysis: i.e., what is generally meant in microeconomic theory by "firm." In this paper we consider the group as the appropriate unit to delimit the firm's boundary, i.e., as the "observed" organizational form adopted by firms when they grow in size. Starting from this hypothesis, the main aim of this paper is to analyse the role of structural variables, such as spatial agglomeration and technology, in determining some features of business groups' strategy and organization. Specifically, the analysis concerns the presence and organizational specificity of business groups based on their membership of industrial districts (as a proxy for spatial agglomeration) and to the role of spatial agglomeration and technology in vertical integration strategies. To conduct the analysis, we take advantage of a new and large data-set at firm and business group level, recently developed by ISTAT (the Italian National Statistical Institute). The data-set, referring to 2001, covers all manufacturing firms organized as joint-stock companies.

Keywords: Business Groups, Agglomeration, Technology, Organization and Strategy

JEL Classification: L22, R12