Skip to main content

Advertisement

SpringerLink
Log in

Growth, Diversification, and Business Group Formation in Entrepreneurial Firms

  • Published:
Small Business Economics Aims and scope Submit manuscript

Abstract

Recent empirical research has demonstrated that the growth process of entrepreneurial firms is frequently achieved through the formation of business groups: i.e. a set of companies run by the same entrepreneur (or entrepreneurial team). This has been hypothesised as result of a growth process by diversification of the original activity. This entrepreneurial growth process offers an alternative explanation for the formation of business Groups, than that arising from managerial efficiency and expediency. The main aim of the article is to explore group formation through entrepreneurial diversification using a sample of high growth entrepreneurial firms. The analysis demonstrates that the running of a group of companies by the same entrepreneur is not only induced by the geographical extension of their operation and by diversification but also by the differentiation policy aimed at serving different market segments within the same sector. This seems to contrast with the diversification policy and organisational setting of large, managerial firms

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

References

  • R. C. Anderson T. W. Bates J. M. Bizjak M. L. Lemmon (2000) ArticleTitleCorporate Governance and Firm Diversification Financial Management 29(Seas Spr) 5–22

    Google Scholar 

  • D. B. Audretsch A. R. Thurik (1999) ArticleTitleLa Nuova Organizzazione Industriale Dalla Economia Gestita All’economia Imprenditoriale L’Industria XX IssueID4 637–656

    Google Scholar 

  • B.Y. Aw G. Batra (1998) ArticleTitleFirm Size and the Pattern of Diversification International Journal of Industrial Organization 16 IssueID3 313–332 Occurrence Handle10.1016/S0167-7187(96)01057-0

    Article  Google Scholar 

  • V. Balloni D. Iacobucci (2001) ArticleTitleI “Nuovi Protagonisti” Dell’industria Italiana (the “New Stars” of the Italian Manufacturing Industry) L’Industria 22 IssueID4 633–675

    Google Scholar 

  • J. E. Bethel J. P. Liebeskind (1998) ArticleTitle‘Diversification and the Legal Organization of the Firm’ Organization Science 9 IssueID1 49–67

    Google Scholar 

  • S. Birley P. Westhead (1993) ArticleTitleA Comparison of New Businesses Established by ‘Novice’ and ‘Habitual’ Founders in Great Britain International Small Business Journal 12 IssueID1 38

    Google Scholar 

  • Chandler. (1962) Strategy and Structure: Chapters in the History of the Industrial Enterprise M.I.T. Press Cambridge

    Google Scholar 

  • S. O. Collin (1998) ArticleTitleWhy Are These Islands of Conscious Power Found in the Ocean of Ownership? Institutional and Governance Hypotheses Explaining the Existence of Business Groups in Sweden Journal of Management Studies 35 IssueID6 719–746 Occurrence Handle10.1111/1467-6486.00117

    Article  Google Scholar 

  • P. Dass (2000) ArticleTitleRelationship of Firm Size, Initial Diversification, and Internationalization with Strategic Change Journal of Business Research 48 IssueID2 135–146 Occurrence Handle10.1016/S0148-2963(98)00097-6

    Article  Google Scholar 

  • S. W. Davies L. Rondi A. Sembenelli (2001) ArticleTitleAre Multinationality and Diversification Complementary or Substitute Strategies? International Journal of Industrial Organization 19 IssueID8 1315–1346 Occurrence Handle10.1016/S0167-7187(00)00063-1

    Article  Google Scholar 

  • D. J. Denis D. K. Denis A. Barin (1997) ArticleTitleAgency Problems, Equity Ownership, and Corporate Diversification Journal of Finance 52 IssueID1 135–160

    Google Scholar 

  • R. Donckels B. Dupon P. Michel (1987) ArticleTitleMultiple Business Starters Who? Why? What?. Journal of Small Business and Entrepreneurship 5 48–63

    Google Scholar 

  • J. P. H. Fan L. H. P. Lang (2000) ArticleTitleThe Measurement of Relatedness: An Application to Corporate Diversification Journal of Business 73 IssueID4 629–660

    Google Scholar 

  • Gerlach M.L. (1995). The Organizational Logic of Business Groups Evidence from the Zaibatsu. In: Shimotani M. (eds). Beyond the Firm; Business Groups in International and Historical Perspective. Oxford, pp. 245–273.

  • P. Ghemawat T. Khanna (1998) ArticleTitleThe Nature of Diversified Business Groups: A Research Design and Two Case Studies Journal of Industrial Economics 46 IssueID1 35

    Google Scholar 

  • A. Goto (1982) ArticleTitleBusiness Groups in a Market Economy European Economic Review 19 IssueID1 53–70

    Google Scholar 

  • E.H. Hall C.H. St John (1994) ArticleTitleA Methodological Note on Diversity Measurement Strategic Management Journal 15 IssueID2 153

    Google Scholar 

  • H. Hansmann (1996) The Ownership of Enterprise The Belknap Press of Harvard University Press Cambridge, MA

    Google Scholar 

  • M. A. Hitt R. E. Hoskisson R. D. Ireland (1994) ArticleTitleA Mid-Range Theory of the Interactive Effects of International and Product Diversification on Innovation and Performance Journal of Management 20 IssueID2 297 Occurrence Handle10.1016/0149-2063(94)90018-3

    Article  Google Scholar 

  • M. A. Hitt R. E. Hoskisson H. Kim (1997) ArticleTitleInternational Diversification: Effects on Innovation and Firm Performance in Product-Diversified Firms Academy of Management Journal 40 IssueID4 767–798

    Google Scholar 

  • R. E. Hoskisson M. A. Hitt R. A. Johnson D. D. Moesel (1993) ArticleTitleConstruct Validity of an Objective (Entropy) Categorical Measure of Diversification Strategy Strategic Management Journal 14 IssueID3 215

    Google Scholar 

  • D. Iacobucci (2002) ArticleTitleExplaining Business Groups Started by Habitual Entrepreneurs in the Italian Manufacturing Sector Entrepreneurship and Regional Development 14 IssueID1 31–48 Occurrence Handle10.1080/08985620110096636

    Article  Google Scholar 

  • Jacquemin, A. and C. H. Berry, 1979, Entropy Measure of Diversification and Corporate Growth, Journal of Industrial Economics 27(4).

  • W. C. Kester (1992) ArticleTitleIndustrial Groups as Systems of Contractual Governance Oxford Review of Economic Policy 8 IssueID3 24

    Google Scholar 

  • T. Khanna (2000) ArticleTitleBusiness Groups and Social Welfare in Emerging Markets: Existing Evidence and Unanswered Questions European Economic Review 44 IssueID4–6 748–761 Occurrence Handle10.1016/S0014-2921(99)00059-8

    Article  Google Scholar 

  • T. Khanna J. W. Rivkin (2001) ArticleTitleEstimating the Performance Effects of Business Groups in Emerging Markets Strategic Management Journal 22 IssueID1 45–74 Occurrence Handle10.1002/1097-0266(200101)22:1<45::AID-SMJ147>3.0.CO;2-F

    Article  Google Scholar 

  • C. A. Montgomery (1994) ArticleTitleCorporate Diversification Journal of Economic Perspectives 8 IssueID3 163

    Google Scholar 

  • Penrose E.T. (1959). The Theory of the Growth of the Firm. 272 p.

  • G. Qian (2002) ArticleTitleMultinationality, Product Diversification, and Profitability of Emerging Us Small- and Medium-Sized Enterprises Journal of Business Venturing 17 IssueID6 611–633 Occurrence Handle10.1016/S0883-9026(01)00080-5

    Article  Google Scholar 

  • V. Ramanujan P. Varadarajan (1989) ArticleTitleReserach on Corporate Diversification: A Synthesis Strategic Management Journal 10 523–551

    Google Scholar 

  • G. Robson C. Gallagher M. Daly (1993) ArticleTitleDiversification Strategy and Practice in Small Firms International Small Business Journal 11 IssueID2 37

    Google Scholar 

  • P. Rosa (1998) ArticleTitleEntrepreneurial Processes of Business Cluster Formation and Growth by ’Habitual’ Entrepreneurs Entrepreneurship Theory and Practice 22 IssueID4 43–62

    Google Scholar 

  • P.J. Rosa M.G. Scott (1996) “Portfolio Entrepreneurs: Some Empirical Evidence on the Multiple Ownership or Control of Smes, and Its Implication for Our Understanding of Start-up and Growth” Research in entrepreneurship and small business: Entrepreneurship and SME research; on its way to the next millenium. 113–126 Aldershot Brussels

    Google Scholar 

  • P. Rosa M. Scott (1999a) ArticleTitleEntrepreneurial Diversification, Business-Cluster Formation, and Growth Environment and Planning C 17 IssueID5 527–548

    Google Scholar 

  • P. Rosa M. Scott (1999b) ArticleTitleThe Prevalence of Multiple Owners and Directors in the Sme Sector: Implications for Our Understanding of Start-up and Growth Entrepreneurship and Regional Development 11 IssueID1 21–38 Occurrence Handle10.1080/089856299283272

    Article  Google Scholar 

  • Rumelt R.P. (1974). Strategy, Structure, and Economic Performance. Boston, Cambridge, MA. Division of Research, Graduate School of Business Administration, distributed by Harvard University Press.

  • M. Scott P. Rosa (1996) ArticleTitleOpinion: Has Firm Level Analysis Reached Its Limits? Time for a Rethink? International Small Business Journal 14 IssueID4 81–89

    Google Scholar 

  • W. Sengenberger G. Loveman Mi. J. Piore (1990) The Re-Emergence of Small Enterprises : Industrial Restructuring in Industrialised Countries International Institute for Labour Studies Geneva

    Google Scholar 

  • P. Sharma J. J. Chrisman (1999) ArticleTitleToward a Reconciliation of the Definitional Issues in the Field of Corporate Entrepreneurship Entrepreneurship Theory and Practice 23 IssueID3 11–28

    Google Scholar 

  • T. Shiba M. Shimotani (1997) Beyond the Firm : Business Groups in International and Historical Perspective Oxford University Press Oxford, New York

    Google Scholar 

  • D. J. Storey (1994) Understanding the Small Business Sector Routledge London, New York

    Google Scholar 

  • J. Tidd J. R. Bessant K. Pavitt (2001) Managing Innovation : Integrating Technological, Market and Organizational Chang John Wiley Chichester, [England], New York

    Google Scholar 

  • R. I. Tricker (1984) Corporate Governance:Practices, Procedures, and Powers in British Companies and Their Boards of Directors Gower Publisher Co Aldershot, Hants, Brookfield, VT

    Google Scholar 

  • P. Westhead M. Wright (1998) ArticleTitleNovice, Portfolio, and Serial Founders: Are They Different? Journal of Business Venturing 13 IssueID3 173–204 Occurrence Handle10.1016/S0883-9026(97)90002-1

    Article  Google Scholar 

  • M. Wright R. E. Hoskisson L. W. Busenitz J. Dial (2001) ArticleTitleFinance and Management Buyouts: Agency Versus Entrepreneurship Perspectives Venture Capital 3 239–262 Occurrence Handle10.1080/13691060110060646

    Article  Google Scholar 

  • M. Wright K. Robbie C. Ennew (1997) ArticleTitleVenture Capitalists and Serial Entrepreneurs Journal of Business Venturing 12 IssueID3 227–249 Occurrence Handle10.1016/S0883-9026(96)06115-0

    Article  Google Scholar 

  • M. Wright P. Westhead J. Sohl. (1998) ArticleTitleHabitual Entrepreneurs and Angel Investors Entrepreneurship Theory and Practice 22 IssueID4 5–22

    Google Scholar 

  • S. A. Zahra D. F. Jennings D. F. Kuratko (1999) ArticleTitleThe Antecedents and Consequences of Firm-Level Entrepreneurship: The State of the Field Entrepreneurship Theory and Practice 24 IssueID2 45–66

    Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Faculty of Engineering Department of Information Technology, Management and Automation, Universit à Politecnica della Marche, Via Brecce Bianche, Monte Dago, Ancona, 60131, Italy

    Donato Iacobucci

  2. Centre for Entrepreneurship Research, University of Edinburgh, 7 Bristo Square, Edinburgh, EH8 9AL, United Kingdom

    Peter Rosa

Authors
  1. Donato Iacobucci
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Peter Rosa
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Donato Iacobucci.

Rights and permissions

Reprints and permissions

About this article

Cite this article

Iacobucci, D., Rosa, P. Growth, Diversification, and Business Group Formation in Entrepreneurial Firms. Small Bus Econ 25, 65–82 (2005). https://doi.org/10.1007/s11187-005-4258-8

Download citation

  • Issue Date:

  • DOI: https://doi.org/10.1007/s11187-005-4258-8

Keywords

Jel Classification

Search

Navigation