Asli M. Colpan and Alvaro Cuervo-Cazurra
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.
The Swiss watch industry has enjoyed uncontested domination of the global market for more than two decades. Despite high costs and high wages, Switzerland is the home of most of the largest companies in this industry. Scholars in business history, economics, management studies, and other social sciences focused on four major issues to explain such success.
The first is product innovation, which has been viewed as one of the key determinants of competitiveness in the watch industry. Considerable attention has been focused on the development of electronic watches during the 1970s, as well as the emergence of new players in Japan and Hong Kong. Yet the rebirth of mechanical watches during the early 1990s as luxury accessories also can be characterized as a product innovation (in this case, linked to marketing strategy rather than pure technological innovation).
Second, brand management has been a key instrument in changing the identity of Swiss watches, repositioning them as a luxury business. Various strategies have been adopted since the early 1990s to add value to brands by using culture as a marketing resource.
Third, the evolution of the industry’s structure emphasizes a deep transformation during the 1980s, characterized by a shift from classical industrial districts to multinational enterprises. Concentration in Switzerland, as well as the relocation abroad of some production units through foreign direct investment (FDI) and independent suppliers, have enabled Swiss watch companies to control manufacturing costs and regain competitiveness against Japanese firms.Fourth, studying the institutional framework of the Swiss watch industry helps to explain why this activity was not fully relocated abroad, unlike most sectors in low-tech industries. The cartel that was in force from the 1920s to the early 1960s, and then the Swiss Made law of 1971, are two major institutions that shaped the watch industry.