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Two Faces: Effects of Business Groups on Innovation in Emerging Economies

Author

Listed:
  • Ishtiaq P. Mahmood

    (Department of Business Policy, National University of Singapore, 17 Law Link, Singapore 119260)

  • Will Mitchell

    (The Fuqua School of Business, Duke University, Box 91020, Durham, North Carolina 27708-0120)

Abstract

This paper shows that business groups in emerging economies exert dual effects on innovation. While groups facilitate innovation by providing institutional infrastructure, groups also discourage innovation by creating entry barriers for nongroup firms and thereby inhibit the proliferation of new ideas. This pattern reflects an evolutionary process in which the interplay of the availability of innovation infrastructure and variety of ideas influences the level of innovation in an industry. We show that group market share has an inverted-U impact on innovation in industrial sectors of both Korea and Taiwan during the 1981--1995 period. Institutional differences between Korea and Taiwan in terms of market structure and industrial policies lead to different innovation thresholds, the point at which the marginal costs of increasing group share begin to dominate the marginal benefits in the two countries.

Suggested Citation

  • Ishtiaq P. Mahmood & Will Mitchell, 2004. "Two Faces: Effects of Business Groups on Innovation in Emerging Economies," Management Science, INFORMS, vol. 50(10), pages 1348-1365, October.
    • Handle: RePEc:inm:ormnsc:v:50:y:2004:i:10:p:1348-1365
    DOI: 10.1287/mnsc.1040.0259
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