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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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  • Berhanu Abegaz

    () (Department of Economics, College of William and Mary)

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    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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    Bibliographic Info

    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
    Date of revision:
    Handle: RePEc:cwm:wpaper:13

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

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    Cited by:
    1. Michael Carney, 2008. "The many futures of Asian business groups," Asia Pacific Journal of Management, Springer, vol. 25(4), pages 595-613, December.

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