Diversified Business Groups and Refocusing in Emerging Economies

Diversified Business Groups and Refocusing in Emerging Economies Robert E. Hoskisson

Distinguishing Business Groups from Networks

Samsung Group Electronics subgroup Samsung Electronics Samsung Electron Devices Samsung Electronic Mechanics Machinery subgroup Samsung Heavy Industry Samsung Aerospace Samsung Motor Samsung Watch Central Office Strategic Planning Human Resources Public Relation Financial Controls Chemical subgroup Samsung Petrochemical Samsung General Chemicals Samsung Specialty Chemical Financial subgroup Samsung Life Insurance Samsung Marine Insurance Samsung Securities Samsung Credit Card Independent Businesses subgroup Hotel Shilla Korea First Advertising Cheil Wool Textile Joong. Ang Daily News Shinsegae Department Store Samsung Corporation Cheil Sugar Samsung Engineering Everland

Business Groups: Costs and Diversification Transaction Costs Organization Costs Diversification

Business Groups: Reduced Overall Transaction Costs Organization Costs Diversification

Issues that Influence Refocusing External shocks such as a currency crisis More active takeover market Mass privatization policies Business groups may be protected from competition because of market power in key industries Business groups operating within countries which emphasize relational norms Business groups exhibiting poor performance Business groups with higher top management team turnover Business groups that exhibit lower levels of affiliate firm trust

Korean Chaebols Mismatch between diversification strategy and structure Diversification unrelated Unrelated Firm Chaebols Related Firm related Headquarters Influence decentralized

Relationship between Divisions and Organization Costs

Organization Costs and Diversification Transaction Costs Organization Costs Diversification

Ownership Incentives for Refocusing Toward More Related Versus Unrelated Diversification Ownership Type Family Other Financial Institutions Foreign Bank Government Related Restructuring Unrelated Restructuring

Business Group Configurations

How will Business Groups Evolve? Will groups move toward horizontally connected networks? Will groups move toward centrally controlled multidivisional structures (M-forms)? What will be the trade offs in regard to corporate entrepreneurship? With whom will they be competing? – Developed economy firms – Other emerging economy firms

Refocusing and Internationalization As groups reduce diversification, will they substitute product diversification for international diversification? Group sharing of resources – Group membership may facilitate economies of capital sharing in pursuing international diversification due to internal market operations Group knowledge sharing – Benefit from the experience of other group members compared to independent firms Group-affiliated firms in the same foreign region are natural candidates foreign business alliances that may be necessary for critical mass

Model of Institutional Change

The Effect of Business Group Affiliation Governance on International Diversification and Market to Book Value Kim, Kim & Hoskisson 2010 JIBS 15