Business group

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In business, a group, business group, corporate group, or (sometimes) alliance is a hybrid organizational form between a firm and market: typically, a cluster of legally distinct firms with a managerial relationship.^[1][2] The relationship between the firms in a group may be formal and/or informal.^[3] A keiretsu is one type of business group. When a business group exists as a legal entity itself, it may be a type of conglomerate and/or holding company.

The definition of business group varies.

For instance, Leff (1978:663) defines business group as a group of companies that does business in different markets under common administrative or financial control whose members are linked by relations of interpersonal trust on the bases of similar personal ethnic or commercial background a business group. Encarnation (1989:45) refers to Indian business houses, emphasizing multiple forms of ties among group members. Powell and Smith-Doerr (1994:388) state that a business group is a network of firms that regularly collaborate over a long time period. Granovetter (1994:454) argues that business groups refers to an intermediate level of binding, excluding on the one hand a set of firms bound merely by short-term alliances and on the other a set of firms legally consolidated into a single unit. Williamson (1975, 1985) claims that business groups lie between markets and hierarchies. Khanna and Rivkin (1999) suggest that business groups are typically not legal constructs though some regulatory bodies have attempted to codify a definition.

The research literature on business groups/alliances clearly shows that business groups can be based on different types of alliances such as bank relationships (e.g., Frank and Myer 1994 for Germany and e.g., Kojima 1998 for Japan), interlocking board directorates (Mizruchi and Galaskiewicz 1993), owner alliances (Kim 1991, for Korea), information sharing (Japelli and Pagano 1993), joint ventures (Berglöf and Perotti 1994), and cartels (Green and Porter 1984). The research also shows that business groups’ structure varies across corporate governance systems. Japan’s keiretsu are organized either vertically or horizontally and develop across industries. The keiretsu generally include a bank, a holding or a trading company, and a diverse group of manufacturing firms In contrast, Korea’s Chaebol are typically controlled by a single family or a small number of families and are uniformly vertically organized (Kim 1991). Business groups in Taiwan, guanxiqiye, tend to be small, loosely integrated entities with a didactic managerial style, as opposed to the authoritarian style common in Korean and Japanese groups (Fields 1995). Chinese business groups have developed their own unique structure: the groups are large multi-industry entities with strong ties to the state but not to particular families (Keister 1999). Most of this research stems from emerging market countries. Countries such as Sweden and Germany have recently experienced major changes in the business group structure; crossownership and pyramids have gradually disappeared. Yet we know very little about the effects of the business groups and even less about the effect of new business structures.^[4]

One of the first published references to define business group was Leff (1976):

A Group is a multienterprise firm that draws its capital from sources extending beyond a single nuclear family: e.g., from people linked by communal, tribal, ethic or personal relations of trust and mutual confidence. In addition somewhat like the zaibatsu in pre-World War II Japan, the Groups invest and produce in several product markets rather than in a single product line. For example, a Group's single decision-making center may encompass activities ranging as widely as textiles, cement, fabricated steel, zinc mining, and cattle ranching. The largest Groups also possess their own banks…and perform the principal functions of a capital market…The Groups in fact constitute a mechanism for mobilizing and pooling entrepeneurship and technical expertise as well as capital in large-scale, modern activities.^[5]

[edit] See also

• Business alliance
• Keiretsu

[edit] References

1. ^ Business Groups: Between Market and Firm by James R. Maclean, October 14, 2005. Accessed May 6, 2006.
2. ^ Business Groups in Emerging Markets: Paragons or Parasites? by Tarun Khanna & Yishay Yafeh, August 2005. Abstract accessed May 6, 2006.
3. ^ Granovetter, M. (1994). “Business groups,” in The Handbook of Economic Sociology (J. N. Smelser and R. Swedberg, Eds.), pp. 453–475, Princeton Univ. Press, Princeton.
4. ^ Projekt ansökan—The Impact of Business Groups/Alliances on Executive Compensation and Firm Performance, Sweden 1985–1997. Published October 21, 1999.
5. ^ Leff, N., 1976. Capital Markets in the Less Developed Countries. The Group Principle. (ed.) by McKinnon, R. in Money and Finance in Economic Growth and Development. New York: Marce Dekker.