Diversification strategy in Portuguese economic context. An empirical analysis: the case studies of Sonae and Jeronimo Martins.

The topic of the present work thesis is diversification strategy. In particular the Portuguese context is studied, it proved to be breeding grounds for my studies. The interest of this research derived from the Erasmus experience that gave me the opportunity to know the companies analyzed, the Portuguese economic context and to collect all the data and information that the study required. In this thesis an empirical analysis of two Portuguese companies is proposed: Sonae and Jeronimo Martins. These companies focus on the retail industry and through operations, such as acquisitions and partnerships, they have diversified their activities over the years. Nowadays Sonae and Jeronimo Martins are leaders of the Portuguese retail industry and they have reinforced their position. The aim of the study is to determine whether the number of acquisitions and partnerships concluded by the companies has influenced the number of stores that the two companies have opened in the years 1998-2013. To achieve this objective both a qualitative and a quantitative analysis will be conducted: in fact a descriptive analysis of company data from a historical viewpoint will be proposed, in this regard a time series of data from 1998 to 2013 will be built for each company, and also an econometric analysis of time series data of the two case studies. The first part of the thesis is a comprehensive review of diversification strategy literature to better understand diversification strategy and the rest of the work. Starting from definitions of diversifications given by authors and the description of related and unrelated diversification, benefits and costs of diversification, and the theories of why firms diversify, the attention will be focalized on the relationship between diversification and performance. Literature review will be concluded with the link between resources and type of diversification. The second chapter focalizes on the diversification modes. The choice of entry mode is an important part of a firm’s new business development strategy. A diversifying entrant is concerned not only about what markets to enter, but also how to enter them. Firms typically enter new markets through internal development, a common alternative is to acquire a firm or business unit that is already established, a further alternative is to enter through alliances such as joint ventures. In any given context, the three modes are likely to differ referring to the costs, risk, and speed of entry. In the chapter advantages and disadvantages of the three diversification methods will be specified. In the last part of the work the empirical analysis is made, it is organized on three “levels”: the first one is an introduction of the two companies, in which a company overview and a business units descriptions are present both for Jeronimo Martins and Sonae. The second “level” is a description analysis of company data, in this part there is a descriptive analysis of the data of the two companies from a historical viewpoint, in this regard a time series of data from 1998 to 2013 has been built for each company. Thus, analyzing operating and financial trends of companies in the last 16 years relevant information on the overall performance of the companies may be obtained, moreover a comparative analysis of the companies is provided. The third “level” is an econometric analysis, to achieve the objective of the study four econometric models are proposed. In these econometric models the dependent variable is the number of stores, while the key independent variables are the number of acquisitions and the number of partnerships. Furthermore also an economic-financial variable or a variable of business growth will be added to each model, in order to verify its influence to the dependent variable. Finally the conclusions of the study are presented. From a methodological point of view, the electronic databases of the library of Universidade de Coimbra, (B-on or Proquest and ABI-INFORM Global), the consolidated annual reports of Jeronimo Martins and Sonae, and the software “STATA Version 12” for processing the time series in the econometric analysis, were used