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The Diversified Business Group as an Innovative Organizational Model for Large State-Enterprise Reform in China and Vietnam

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Author Info
Berhanu Abegaz () (Department of Economics, College of William and Mary)
Abstract

The diversified business group (DBG) is a ubiquitous institution in developing economies. It is a formal inter-firm network that typically involves financial institutions, distributors and manufacturers. Groupwise diversification is viewed by some as a novel form of organizational innovation by entrepreneurial tycoons while others see it as an instrument for rent seeking. Inspired by Korean chaebols but chastened by Russian financial-industrial groups, China and Vietnam are creating business groups out of state enterprises. After reviewing the theory and cross-country experience, this paper concludes that selective economic grouping can be an efficient transitional organization. DBGs can facilitate government monitoring, exploitation of scale economies for scarce managerial talent, better risk management, and realization of network and scope economies. Success in incubating national champions is, however, predicated on a high technocratic capability for restraining abuse of market power, nurturing competitive market institutions, properly sequencing large scale privatization, and crafting WTO-compatible industrial and technology policies.

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Paper provided by Department of Economics, College of William and Mary in its series Working Papers with number 13.

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Length: 30 pages
Date of creation: 07 Jan 2005
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Handle: RePEc:cwm:wpaper:13

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Related research
Keywords: Diversified business group; Organizational innovation; State enterprises; China; Vietnam.;

Find related papers by JEL classification:
G3 - Financial Economics - - Corporate Finance and Governance
L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
L3 - Industrial Organization - - Nonprofit Organizations and Public Enterprise
O3 - Economic Development, Technological Change, and Growth - - Technological Change
P5 - Economic Systems - - Comparative Economic Systems

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    Other versions:
  3. Aoki, Masahiko, 1990. "Toward an Economic Model of the Japanese Firm," Journal of Economic Literature, American Economic Association, vol. 28(1), pages 1-27, March. [Downloadable!] (restricted)
  4. Hicheon Kim & Robert E. Hoskisson & Laszlo Tihanyi & Jaebum Hong, 2004. "The Evolution and Restructuring of Diversified Business Groups in Emerging Markets: The Lessons from Chaebols in Korea," Asia Pacific Journal of Management, Springer, vol. 21(1_2), pages 25-48, 03. [Downloadable!]
  5. Marianne Bertrand & Paras Mehta & Sendhil Mullainathan, 2002. "Ferreting Out Tunneling: An Application To Indian Business Groups," The Quarterly Journal of Economics, MIT Press, vol. 117(1), pages 121-148, February. [Downloadable!] (restricted)
    Other versions:
  6. Jeong-Pyo Choi & Thomas Cowing, 2002. "Diversification, Concentration and Economic Performance: Korean Business Groups," Review of Industrial Organization, Springer, vol. 21(3), pages 271-282, November. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Michael Carney, 2008. "The many futures of Asian business groups," Asia Pacific Journal of Management, Springer, vol. 25(4), pages 595-613, December. [Downloadable!] (restricted)
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