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date: 20 October 2018

Business Groups as an Organizational Model

Summary and Keywords

Business groups are an organizational model in which collections of legally independent firms bounded together with formal and informal ties use collaborative arrangements to enhance their collective welfare. Among the different varieties of business groups, diversified business groups that exhibit unrelated product diversification under central control, and often containing chains of publicly listed firms, are the most-studied type in the management literature. The reason is that they challenge two traditionally held assumptions. First, broad and especially unrelated diversification have a negative impact on performance, and thus business groups should focus on a narrow scope of related businesses. Second, such diversification is only sustainable in emerging economies in which market and institutional underdevelopment are more common and where business groups can provide a solution to such imperfections. However, a historical perspective indicates that diversified business groups are a long-lived organizational model and are present in emerging and advanced economies, illustrating how business groups adapt to different market and institutional settings. This evolutionary approach also highlights the importance of going beyond diversification when studying business groups and redirecting studies toward the evolution of the group structure, their internal administrative mechanisms, and other strategic actions beyond diversification such as internationalization.

Keywords: business groups, emerging markets, large enterprise, conglomerates, corporate governance

Introduction

Business groups are an organizational model in which a collection of legally independent companies are bound together with formal and informal ties that use collaborative arrangements to enhance their collective welfare (Colpan & Hikino, 2010). This organizational model has existed for a long time and across many countries, but its analysis had received relatively limited attention in modern management research because that research was dominated by the experience of modern US publicly traded firms in which business groups were mostly absent (Morck, 2005). In the 1980s, however, the interest in the success of Japanese companies and their affiliation to keiretsu groups prompted the analysis of business groups to understand how such organizations appeared to provide some level of superior management to the free-standing and product-specialized publicly traded corporation that was the prototypical organization studied in the United States (Gilson & Roe, 1993). This was partly because the fortunes of Japanese groups contrasted with that of acquisitive conglomerates with broad diversification that appeared in the United States in the 1960s and 1970s but which mostly disappeared due to their weak competitive capabilities and financial underperformance in the 1980s and 1990s (Chandler, 1982; Collis, Anand, & Cheng, 2018). In the 2000s, research studying business groups in emerging economies accelerated because some of these pulled the economic growth of their nations and were profitable enterprises (Khanna & Rivkin, 2001). Some business groups even began turning into multinational enterprises that mounted credible competitive threats to established multinationals from advanced economies (Ramamurti & Singh, 2009). The prevailing view was that those emerging market business groups challenged two of the precepts of standard management theories. One was the superiority of focused companies over unrelated diversified ones, which argued that broadly diversified firms suffered from a diversification discount as a result of the cross-subsidization of subsidiaries and inefficient investments (Rajan, Servaes, & Zingales, 2000). Another was that business groups were an organizational form sustained by the existence of market and institutional underdevelopment in emerging economies (Ghemawat & Khanna, 1998); following this logic, business groups should disappear as emerging economies develop and reduce their institutional underdevelopment. Thus, much of the literature concentrated on understanding whether the affiliation of a company with a business group provided some kind of advantage over companies that were unaffiliated, as well as how the characteristics of emerging economies supported the development of these organizational models (Khanna & Yafeh, 2007). However, especially since the 2010s, historical analysis of business groups challenged some of the prior assumptions as those studies showed that business groups have long existed in both emerging as well as advanced economies (Colpan & Hikino, 2018a).

The evolution in the understanding of the prevalence of business groups has also resulted in a parallel development in the understanding of the key characteristics of these organizational models and of the areas of research that need further attention. Thus, from an initial understanding of business groups as an organizational model created to address market and institutional underdevelopment in a given country (Khanna & Yafeh, 2007), the literature has moved toward an understanding of business groups as an organizational model that can change and adapt even as the market and institutions in the country develop (Colpan & Hikino, 2018b). In a similar fashion, studies have begun to see business groups as a dynamic organization that has the ability to change from a loosely coupled organization with a dispersed set of companies to a more systematically administered organization with competitive resources and capabilities shared among affiliated companies that can compete not only at home but also abroad (Colli & Colpan, 2016).

This article first presents a review of the definition and categorization of business groups to clarify the various types of business groups. It then discusses the theories that have been put forward to explain the existence of business groups. After that, it provides a brief overview of the state of the literature on business groups and concludes with some suggestions for future research on the topic.

Business Groups and Their Types

Business groups have been described in many ways, but in the broadest sense they “characterize an economic coordination mechanism in which legally independent companies (bounded together with formal and informal ties) utilize the collaborative arrangements to enhance their collective economic welfare” (Colpan & Hikino, 2010, p. 17). Business groups show a large variety of types that reflect the different analytical lenses researching those groups. Table 1 illustrates the stylized features of the major categories of business groups.

Table 1. Stylized Features of Different Types of Business Groups

Business Groups as an Organizational Model

Source: Colpan and Hikino (2010).

* Ultimate control here means “in a position to control, or materially to influence, the management of one or more other companies by virtue, in part at least, of its ownership of securities in the other company or companies” (Bonbright & Means, 1932, p. 10).

The first categorization of business groups is the separation by the type of control that ties the firms into two groups: alliance and authority (Colpan & Hikino, 2010). This separation reflects the distinction of economic relationships into three types based on the contractual relationships that govern transactions discussed in transaction cost economics (Williamson, 1985): hierarchies (i.e., long-term contractual relationships driven by managerial fiat), alliances (i.e., short- and long-term contractual relationships driven by negotiation and relationships), and markets (i.e., short-term contractual relationships driven by price signals).

Using this framework, the first type is the network type of business groups that are bound together under the “alliance principle” (Colpan & Hikino, 2010). These network-type business groups are understood as “loose coalitions of firms which have no legal status (as a whole) and in which no single firm or individual holds controlling interests in the other firms” (Granovetter, 1995, p. 96). The identifying feature of these groups is that they do not have a central apex unit that has the potential to exercise control over the entire group. The typical archetype of these types of groups is the Japanese kigyo-shudan, known as horizontal keiretsu. One example is the Mitsubishi group. After the dissolution of the pre–World War II zaibatsu in 1946, the component firms reformed the group through a web of cross-shareholdings with formal and informal coordinating mechanisms (including the presidents’ council and interlocking directorates); the main group companies are the financial company Mitsuishi Bank (Bank of Tokyo-Mitsubishi UFJ, since 2006), the trading company Mitsubishi Corporation, and the manufacturing group Mitsubishi Heavy Industries (Fruin, 2008; Lincoln & Shimotani, 2010; Mitsubishi, 2017). However, network-type business groups are not exclusive to Japan. One example is the largest Colombian business group Grupo Empresarial Antioqueño. This is not a legal entity but rather a collection of businesses in a region. In 2016, it had sales of $50 billion or about 5% of the GDP of Colombia and had three main component subgroups: the food group Inversiones Nutresa; the cement, infrastructure, and real estate Grupo Argos; and the bank Bancolombia and insurance group Grupo Sura (Dinero, 2016).

The second type are hierarchy-type business groups, in which a central unit controls legally independent operating affiliated firms that are tied together via several ties, including equity ties and interlocking directorates (Khanna & Yafeh, 2007). In this category of business group, we can separate two subtypes depending on the analytical perspective taken by the researchers: pyramidal business groups, in which the ownership relationships among businesses is the center of attention, and diversified business groups, in which the strategic relationship among businesses is key. This is an analytical separation because business groups can be both diversified and pyramidal at the same time.

Pyramidal groups, which are usually the focus of interest of finance and governance scholars, can be understood as chains of publicly listed companies—they consist of “two or more listed firms under a common controlling shareholder, presumed to be the largest block holder voting at least 20 percent or, alternatively, 10 percent” (Morck, 2010, p. 603). The center of analytical attention here is on the ownership structure and the separation of control rights from cash flow rights (Morck, 2005).

Diversified business groups, on the other hand, can be defined as the “collections of legally-independent enterprises, linked through equity ties and other economic means, which have a central unit at the helm that controls the affiliated enterprises in unrelated industries” (Colpan & Hikino, 2018b). The focus of interest here is the unrelated diversification that these groups exhibit. One example is the Turkish Koç Holding, which in 2016 had $23 billion in revenues, employed more than 90,000 people, and operated businesses in a wide range of industries including energy, automotive, consumer durables, finance, and others (Koç Holding, 2017).

Diversified groups are also often divided according to their controlling ownership types into family-owned, state-owned, and bank-centered business groups (Colpan & Hikino, 2018a). One example of a family-owned group is the Brazilian group J&F Investimentos, which is the family holding of the Wesley and Joesley Batista brothers, with 2015 revenues of $55 billion and 230,000 employees. It owns JBS, the largest meat packer in the world, as well as Alpargatas, the largest footwear and clothing producer in Latin America; Flora, a large firm in the personal care and cleaning products firm; Eldorado Brasil, the largest pulp production mill in the world; Banco Original, an agribusiness bank; Ambar Energia in energy generation and distribution; television and other businesses, with operations in 23 countries (JFInvest, 2017). An example of a state-owned business group is the Spanish SEPI group, which acts as the holding for the Spanish state investment in industrial firms, being a majority shareholder in 15 firms operating in diverse industries such as energy, defense, food, tobacco, horse racing, media, mail, and coal; is a minority shareholder in 9 companies; and is the shareholder the TV broadcaster RTVE and a foundation (SEPI, 2017). Finally, an example of a bank-owned group was the Spanish Banesto Industrial and Financial Corporation, which in 1990 had the bank Banesto at the center of a group of industrial companies that represented 1% of Spanish GDP (El País, 1990).

While diversified business groups and pyramidal business groups may be analytically separate, in reality, diversified business groups often exhibit pyramidal structures of ownership, such as the Tata group in India, the Samsung group in South Korea, and the Wallenberg Group in Sweden—all of which are family-controlled. Figure 1 illustrates the archetypal structure of diversified business groups.

Business Groups as an Organizational ModelClick to view larger

Figure 1. Archetypal structure of diversified business groups.

Source: Colpan and Hikino (2010).

We will focus from here on a discussion of diversified business groups. These organizational models act as a research laboratory that challenges two traditional arguments in management research, as we indicated before. The first argument is that unrelated diversified firms underperform more focused ones and thus diversified business groups should not be able to operate profitably. The second argument is that business groups emerge as the result of underdeveloped markets and institutions in emerging markets and thus should not exist in advanced economies. These two arguments assume that business groups as an organizational model are only viable in filling the institutional gaps and overcoming associated transaction costs in emerging economies. However, there are alternative drivers behind the existence of business groups and other dimensions that are worth analyzing. The next section examines these.

Theoretical Explanations for Diversified Business Groups

The origins of the theoretical analysis of diversified business groups can be traced to Leff (1976, 1978) and his analysis of business groups in less developed countries. Since then, the analysis of diversified business groups has been examined basically from two perspectives (Colpan & Hikino, 2010): an external perspective that stresses the pre-eminence of environmental factors driving the existence of business groups and an internal perspective that emphasizes intra-group factors driving the existence of business groups.

In the external perspective, there are two main explanations: (1) underdevelopment of markets and institutions and (2) government support. First, the economics-based argument that business groups are a solution to market underdevelopment and the associated transaction costs in developing economies has become the most important explanation for the formation of business groups (Ghemawat & Khanna, 1998; Leff, 1976, 1978). The argument is that emerging economies suffer from capital, labor, and product markets and institutions that are underdeveloped, and business groups are designed to fill in those gaps in the markets and market institutions (Khanna & Palepu, 1997; Khanna & Rivkin, 2001). Capital markets are often underdeveloped in emerging economies as equity markets may be weak or missing altogether, and there are no adequate financial institutions for long-term financing. The business group then becomes, according to this school of thought, an effective substitute in transferring capital across companies and supporting the funding of new business ventures. When there is available outside capital, business groups with an established reputation will also be in an advantageous position due to the lack of reliable information and protective measures available to outside investors (Cheng, Zuzul, Jones, & Khanna, 2017; Khanna & Palepu, 1997). Likewise, labor markets are usually underdeveloped in emerging economies as qualified employees are scarce and there are few credible institutions that can certify employees’ abilities. Business groups can form an internal labor market to nurture and then rotate personnel among their affiliated companies. In this instance, business groups imitate the roles of several labor market institutions including business schools, certification agencies, as well as headhunting firms (Khanna & Palepu, 1997; Khanna & Rivkin, 2001). Finally, product markets are often underdeveloped and lack adequate suppliers or distributors in industries. In this context, a business group can fill the gap in product markets by diversifying into various product lines. Limited enforcement of contracts in developing economies may also induce groups to internalize several businesses rather than using arm’s-length transactions. The Tata group of India that has its origins in the 1860s and the Koç group of Turkey that began developing in the 1920s are appropriate examples in this regard (Colpan & Hikino, 2010; Khanna & Palepu, 1997).

Second, also part of this external perspective are political economy explanations that understand diversified business groups as the outcome of government support of and favor to selected entrepreneurs. In this situation, the government targets certain industries and provides entrepreneurs with favorable conditions, such as direct subsidies and lower interest rates, as well as protection of the domestic market. The upshot is the building of diversified business groups. South Korean business groups (known as chaebol) that developed under the policies of General Park Chung Hee are an often-used example in this context (Kim, 2010; Schneider, 2010). The theoretical logic behind this is that entrepreneurs have developed connections with politicians or government officials and use these connections to obtain preferential access to government support, for instance in the form of soft loans, that enables them to create new companies and achieve an advantage over other entrepreneurs, who have to pay market rates for their funds. Another means is to obtain preferential treatment from the government that enables entrepreneurs to achieve a monopolistic position as government officials provide them with exclusive operating licenses. This preferential access to politicians or government officials, developed through personal, family, educational, or social connections, can be leveraged not only to start and grow a company in one industry but also to expand into a variety of industries in which the government has a large influence either as a direct customer of the products of the industry or due to the regulation of the industry, resulting in the diversification of business groups across a multitude of industries (Ghemawat & Khanna, 1998). An underlying argument behind the idea of government support has been that the presence of political rent-seeking and crony capitalism that results in private benefits to business groups and their entrepreneurs is socially harmful. Thus, in cases in which the government falls out of power, those affiliated with the previous government see their companies suffer in their valuations as investors predict that the previous sources of the advantage of the business group have been harmed by the change in government (Fisman, 2001).

In the internal perspective, there are two explanations: (1) resources and capabilities and (2) ownership. First, studies rooted in strategic management and international business highlight the resources and capabilities of business groups as the drivers of their diversification. While firms in emerging economies may have few sophisticated resources and capabilities in technology and global brands, those that possess and leverage contacts with the government and international companies and build project execution capabilities can create diversified business groups; those generic resources help them to enter and operate in a multitude of businesses. First, contacts with the government may assist the procurement of state contracts or other favors, while contacts with international firms may help with the acquisition of foreign technology and licensing deals (Guillen, 2000; Kock & Guillen, 2001). Second, project execution capabilities mean the “skills required to establish or expand operating and other corporate facilities, including undertaking pre-investment feasibility studies, project management, project engineering (basic and detailed), procurement, construction and startup of operations” (Amsden & Hikino, 1994, p. 129), which can help the groups diversify into unrelated industries. In this case, even if the emergence of business groups may have been facilitated thanks to the market and institutional underdevelopment, their eventual success and continuity depend on their ability to run businesses effectively. Thus, the existence of superior resources and capabilities, initially contacts with the government and international companies and then project-execution capabilities, developed within the business group support their leveraging of those resources across multiple businesses. The superiority of business groups, in this case, is seen as driven by an internally generated set of resources and capabilities, which is often assisted by an initially limited competition from foreign products or companies.

Second, also in the internal perspective, governance scholars have explained the existence and behavior of business groups based on their ownership. They classify business groups into four types based on their controlling owner (Cuervo-Cazurra, 2006, 2018):

  1. 1. Family-owned business groups, in which individuals and their family members are the main shareholders in the business group

  2. 2. State-owned business groups, in which the state is the dominant shareholder in companies operating in multiple industries with a further separation based on the level of the government that owns them, i.e., central or federal, subnational (state or province) or local (municipality or town) government

  3. 3. Labor-owned business groups, in which employees are the main shareholders of the business group

  4. 4. Bank-centered business groups in which a financial institution is the main shareholder (and often the main creditor) in a variety of companies that are strategically coordinated

This separation of business groups by their ownership is important because it has a large influence on the explanation for their existence and on the different agency problems that they face internally (Cuervo-Cazurra, 2006). State-owned and labor-owned business groups follow a very different logic from family-owned and bank-centered business groups because the former are mostly driven by a desire to facilitate economic development and employment rather than by the desire to take advantage of business opportunities of the latter (Cuervo-Cazurra, 2018). Thus, in state-owned business groups, the government creates business groups to facilitate the country’s development when the private sector is unable or unwilling to invest in certain activities or when the government deems certain activities to have a strategic value to the country that necessitates development. In the case of labor-owned business groups, their emergence is driven by the logic of providing employment to the owners of the group as well as economic development in a location. In contrast, family-owned business groups follow the logic of entrepreneurs searching for value and using their superior entrepreneurial capabilities, including in some cases preferred government contacts, to create a series of companies. Finally, bank-owned business groups tend to be driven by the existence of a regulation that either enables banks to invest in industrial firms, or in some cases requires banks to invest in industrial firms (e.g., to rescue and reorganize financially troubled firms). The bank acts as the source of capital to firms in the business group, substituting for alternative sources of capital.

Ongoing Debates

These differences in approaches to the study of business groups have basically resulted in three ongoing debates that continue driving research: (1) the value created by business groups, (2) the long-term evolution of business groups in different market and institutional settings, and (3) the control and coordination of business groups.

One debate is whether business groups create value and contribute to economic development or whether they are merely mechanisms for extracting rents. This debate is summarized by Khanna and Yafeh (2007) in their review of the literature on diversified business groups in emerging markets. Building on the economics literature, the authors present explanations and provide evidence on the reasons for the emergence and prevalence of business groups in emerging economies. They conclude that value creation by business groups depends on the particularities of the time periods, individual countries, and, as importantly, on the intra-group capabilities and administrative mechanisms of the business groups themselves.

Another debate analyzes the evolutionary dynamics of business groups in different market and institutional settings by incorporating evolutionary perspectives. Analyses in the handbook edited by Colpan, Hikino, and Lincoln (2010) highlight the importance of business groups in late-industrializing economies as mechanisms for facilitating development by providing a long-term account of their evolution and transformation. Building on this, a second volume edited by Colpan and Hikino (2018a) extends the analysis to business groups in advanced economies. The volume shows that business groups have been an organizational model prevalent across many countries and in different periods of economic development, challenging the traditional focus on market and institutional immaturities as the explanation for business groups. Hence, diversified business groups are not simply transitionary organizations that work well only in the early phase of economic development but are flexible organizations that can develop new capabilities and change with the environment. Business groups can fit the evolving market and institutional environment to stay on as a viable organization even in advanced economies, challenging the view of earlier research that assume that business groups only operate in emerging economies.

A third debate focuses on the role of owners of business groups and the most appropriate mechanisms to ensure that those owners achieve their objectives and address the managerial complexity created by a collection of nominally independent companies with multiple relationships. The work by Colli and Colpan (2016) examines the internal characteristics of business groups to highlight the intra-group control and coordination and the resulting organizational outcomes. The authors review 119 publications on business groups in the 30 leading journals in business, management, finance, and business history as well as books and book chapters. This analysis, which focus on hierarchy-type business groups and is based on a conceptual framework developed by the authors, highlights the diversity in coordination and control mechanisms that different types of business groups employ and the large variation in these mechanisms across business groups. The review brings to the fore the importance of the variety of business groups according to the type of controlling ownership and shows how the different types of owners play a large role in the way the groups are coordinated and controlled.

Directions for Future Research

The literature on diversified business groups has made significant advances as researchers have integrated insights from multiple theoretical approaches and provide a more nuanced and rich understanding of business groups, even if such a multi-theoretical approach has also resulted in the emergence of new debates (summarized in Colpan and Hikino, 2018b; Colpan et al., 2010; Khanna & Yafeh, 2007). Nevertheless, there are still many research avenues that future studies can explore in more detail to contribute to a better understanding of this organizational model. Three of these seem noteworthy.

First, a promising and pressing opportunity for future research is the study of diversified business groups in advanced economies, which introduce a significant challenge to the traditional explanations of business groups. The conventional explanation for the existence of diversified business groups is that they exist as solutions to market and institutional immaturities in late-industrializing economies. However, the long existence and even continued development of business groups in several advanced economies challenge these traditional explanations. Hence, building on Colpan and Hikino (2018a), a promising direction for research is to focus on analyzing diversified business groups throughout the advanced world and understanding why and how they have emerged, evolved, and declined—or stayed resilient over long periods of time. Historical research on business groups in earlier-industrializing economies can bring new perspectives to the study of today’s emerging market business groups that tend to be handicapped by short-term horizons (for examples of longer perspectives and their benefits, see Jones & Colpan, 2010; Khanna & Jones, 2006). Examining contemporary business groups in advanced economies, which have well-developed competitive markets and established pro-market institutions, is also surely fruitful. This is especially important because several business groups in those economies have continued to prosper even when their economies have achieved advanced economy status with well-established markets and institutions. Some countries have even seen novel forms of diversified business groups emerge that began developing with the liberalization of capital and financial markets. For example, the US and UK economies witnessed the emergence of acquisitive conglomerates in the 1960s, such as Beatrice, Hanson, or ITT, and then private equity in the 1980s, for example Kohlberg Kravis Roberts. With strong regulations in place to deter “pyramiding” (building a multilayered hierarchy of publicly listed firms controlled through partial equity stakes), the conglomerate-type business groups in these two countries differ from business groups in other countries because they typically held full equity stakes in their invested firms (Colpan & Hikino, 2018b). Some researchers also see private equity as a “speed-dating versions of business groups” (Schneider, Colpan, & Wong, 2018). Nonetheless, since most private equity firms buy companies to sell within a short period, their behavior differs markedly from the long-term horizon that conventional business groups take.

Second, a better understanding of the governance and especially the internal administrative mechanisms of diversified business groups is another area that can be pursued in future research. Much of the literature, especially in management and finance, tends to focus on analyzing business groups by using quantitative methods that rely on existing databases of publicly traded firms. As a result, they study publicly traded firms that are affiliated with business groups, providing only snapshots of business groups without examining how the overall business groups are governed and how they can change and adapt their administrative mechanisms over time. This limits a better understanding of the functioning of not only the component firms but also the business groups as a whole, as few studies open the black box of business groups and analyze their behavior. Consequently, an important venue for research is to closely examine the actual functions that boards of directors and top executives play in different group firms. For instance, the literature does not provide in-depth knowledge on the way the boards of the business group–affiliated companies are working—e.g., how the boards of different group firms are taking decisions, how the decision process is coordinated among different affiliated firms, and what roles individual (and interlocking) directors are playing in that process (Colli & Colpan, 2016).

Relatedly, the ways the internal control and coordination mechanisms of diversified business groups evolve as their economies mature to fit into the new institutional contexts is a promising topic. Recent works examining the case of the Italian family-owned business group Exor (which owns the insurance company PartnerRe and has significant shares in the automobile firms Fiat Chrysler and Ferrari, the soccer club Juventus, the news magazine The Economist, and several industrial and financial firms), for instance, argued that over time the headquarters of the group has turned to achieving more administrative efficiency by enforcing systematized control mechanisms: the rules and responsibilities among the headquarters and individual operating units became more structured and systematic and consequently less confused (Colli & Vasta, 2018; Colpan & Hikino, 2018b). These questions necessitate a deep examination of business groups not only through quantitative approaches but also through qualitative sources and methods, such as archival work as well as interviews. While such an approach requires an investment in the long-term understanding of one particular business group, the debate will surely benefit from the comparison of long-term evolutions of business groups within one country and also across countries.

A third avenue that is in need of more attention is an understanding of the strategic conduct of diversified business groups beyond the traditional focus on product diversification. Much of the literature has concentrated its attention on understanding why business groups are found in a multitude of activities and how they can manage such a diverse set of unrelated operations. However, past research has paid less attention to other growth directions of business groups. For example, only recently has some research analyzed the internationalization of business groups and the way companies affiliated with business groups receive support from the parent organization and other affiliated companies in their internationalization (e.g., Guillen, 2002). Colpan and Cuervo-Cazurra (2018) provide an overview of this area and propose that emerging market business groups assert a dual influence on the international expansion of the member companies. On the one hand, business groups can support affiliated companies’ internationalization as they provide those companies with not only capital but also deep tacit knowledge about international business and host country conditions that can facilitate entry into these host countries. On the other hand, the business group can also constrain the internationalization of affiliated firms by confining their expansion to countries in which other affiliated companies of a business group already have a presence, even if these particular countries are not the optimal location for investment. These international growth dynamics also depend on the institutional context of the home country where the business group is located, with the pro-market reforms in the home country leading business group–affiliated companies to expand faster and more extensively (Colpan & Cuervo-Cazurra, 2018). Informed by the extensive literature on emerging market multinationals (e.g., Cuervo-Cazurra & Ramamurti, 2014; Ramamurti & Singh, 2009), analyzing the internationalization of business groups is thus another promising field of research, which can be valuable in understanding the efficiency and effectiveness of this organizational model.

Conclusion

This article has analyzed business groups and outlined some of the areas in which we have gained a deep understanding and other areas in which there is still a need for better comprehension. Diversified business groups as an organizational model are not only vital to emerging economies, they have been as important in advanced economies—and are likely to stay so. As such, they deserve additional attention in particular regarding the areas that seem to challenge some of the traditional explanations behind multi-business companies. The complex organizational nature of these business groups is what creates an intriguing economic institution that deserves more attention.

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