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Economies of connectedness: Concept and application

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  • Dieleman, Marleen
  • Sachs, Wladimir M.
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    Abstract

    We argue that diversification can partly be explained by means of a novel concept, "economies of connectedness", denoting personal relationships of the owners that are used to add new businesses to an otherwise diversified portfolio. Economies of connectedness is a concept that complements those of cronyism and corruption, which by definition are illegal while diversification resulting from sharable personal relations is not necessarily so. The concept is illustrated by an original empirical study of Indonesia's Salim Group. The in-depth longitudinal case study shows the interplay of conventional economies of scope with economies of connectedness. We find that economies of connectedness play an important role for the Group in enhancing diversification in a weak institutional environment. Over time however, economies of connectedness decrease.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of International Management.

    Volume (Year): 14 (2008)
    Issue (Month): 3 (September)
    Pages: 270-285

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    Handle: RePEc:eee:intman:v:14:y:2008:i:3:p:270-285

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    Related research

    Keywords: Economies of connectedness Business groups Diversification Economies of scope Indonesia Salim Group;

    References

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      • Mike Burkart & Fausto Panunzi & Andrei Shleifer, 2003. "Family Firms," Journal of Finance, American Finance Association, vol. 58(5), pages 2167-2202, October.
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    11. Ghemawat, Pankaj & Khanna, Tarun, 1998. "The Nature of Diversified Business Groups: A Research Design and Two Case Studies," Journal of Industrial Economics, Wiley Blackwell, vol. 46(1), pages 35-61, March.
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    Cited by:
    1. Jessie Zhou & Mike Peng, 2012. "Does bribery help or hurt firm growth around the world?," Asia Pacific Journal of Management, Springer, vol. 29(4), pages 907-921, December.
    2. Mario García Molina, 2010. "Crisis Y Diversificación De Los Grupos Empresariales Colombianos A Finales De Los Noventa," DOCUMENTOS DE TRABAJO - ESCUELA DE ECONOMÍA 007571, UN - RCE - CID.
    3. Lau, Victor P. & Dimitrova, Mihaela N. & Shaffer, Margaret A. & Davidkov, Tzvetan & Yordanova, Desislava I., 2012. "Entrepreneurial Readiness and Firm Growth: An Integrated Etic and Emic Approach," Journal of International Management, Elsevier, vol. 18(2), pages 147-159.
    4. Zhang, Jianhong & He, Xinming, 2014. "Economic nationalism and foreign acquisition completion: The case of China," International Business Review, Elsevier, vol. 23(1), pages 212-227.
    5. Kotabe, Masaaki & Jiang, Crystal Xiangwen & Murray, Janet Y., 2011. "Managerial ties, knowledge acquisition, realized absorptive capacity and new product market performance of emerging multinational companies: A case of China," Journal of World Business, Elsevier, vol. 46(2), pages 166-176, April.

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