Business Groups in Emerging Economies: An Analysis of Our Current Understanding

Business groups are the dominant organizational form in most emerging economies. They form strong linkages between firms in order to counteract the existence of institutional voids such as the lack of adequate capital and labour markets. Groups essentially exist to reduce transaction costs and risk created by institutional failings by using the internal resources of the collective to form their own markets for resources such as capital and labour. Affiliated firms also benefit from economies of scale and scope which stems from a prolonged drive towards diversification strategies within the early years of group formation. In many economies their power and dominance is unrivalled, being responsible for a considerable percentage of many economies GDP and the engine behind their continued growth. Globalization has been a buzz word within the strategic literature for many years now, and as many face reduced opportunities in their domestic markets the allure of emerging economies is too great to resist. The population of China and India alone currently stands at over two billion people and as these economies develop so will their spending power and their importance to firms around the globe. Because of the massive impact these countries will have in shaping the future world economy and decisions many business leaders and governments will have to make in the future, it is essential that we have a clear understanding of what drives these economies and how foreign firms can interact and grow within their economies. Business groups form a firm foundation in almost all of these countries and dominate the domestic landscape. The aim of this dissertation is to unravel from the most recent research and findings, what our current state of knowledge actually is regarding such an organizational form, what has the research so far covered and in what direction is it heading? The author finds that our knowledge of business groups is limited to only a few countries such as Japan and Taiwan. Despite much of the literature focusing on such a few number of economies our understanding and knowledge even of business groups within these countries still needs to be developed. The more under developed economies have overall received even less attention and our understanding of these economies is still in its infancy. Our future understanding however looks very promising as the number of studies, techniques and theoretical perspectives used are on the increase in both the already richly studied economies of Asia and now the relatively under researched areas of the globe such as South America. The structure of this dissertation is as follows. Section one will proceed with a brief introduction to business groups and emerging economies. Section two provides an in-depth description of my methodology, what my main research aims are and how I came to my final list of journals for analysis. Sections three to five contain my analysis and interpretation of the data collected in order to answer my three most pressing research questions and each begin with a brief overview of the literature regarding the topic. Section six offers conclusions to my findings and also incorporates a discussion of how research into business groups could be improved and where we should be heading in the future