Diversified Business Groups and Refocusing in Emerging Economies

1. Diversified Business Groups and Refocusing in Emerging Economies Robert E. Hoskisson

2. Distinguishing Business Groups from Networks

3. Samsung Group Electronics subgroup • Samsung Electronics • Samsung Electron Devices • Samsung Electronic Mechanics Central Office Chemical subgroup • Samsung Petrochemical • Samsung General Chemicals • Samsung Specialty Chemical • Strategic Planning • Human Resources • Public Relation • Financial Controls Machinery subgroup • Samsung Heavy Industry • Samsung Aerospace • Samsung Motor • Samsung Watch Financial subgroup • Samsung Life Insurance • Samsung Marine Insurance • Samsung Securities • Samsung Credit Card Independent Businesses subgroup • Hotel Shilla • Korea First Advertising • Cheil Wool Textile • JoongAng Daily News • Shinsegae Department Store • Samsung Corporation • Cheil Sugar • Samsung Engineering • Everland

4. Business Groups: Costs and Diversification Transaction Costs Organization Costs Costs Diversification

5. Business Groups: Reduced Overall Transaction Costs Transaction Costs Organization Costs Costs Diversification

6. Issues that Influence Refocusing • External shocks such as a currency crisis • More active takeover market • Mass privatization policies • Business groups may be protected from competition because of market power in key industries • Business groups operating within countries which emphasize relational norms • Business groups exhibiting poor performance • Business groups with higher top management team turnover • Business groups that exhibit lower levels of affiliate firm trust

7. Korean Chaebols • Mismatch between diversification strategy and structure Diversification unrelated Chaebols Unrelated Firm Related Firm related Headquarters Influence decentralized centralized

8. Relationship between Divisions and Organization Costs

9. Organization Costs and Diversification Transaction Costs Organization Costs Costs Diversification

10. Ownership Incentives for Refocusing Toward More Related Versus Unrelated Diversification Ownership Type Related Restructuring Unrelated RestructuringFamily Other Financial InstitutionsForeignBankGovernment

11. Business Group Configurations

12. How will Business Groups Evolve? • Will groups move toward horizontally connected networks? • Will groups move toward centrally controlled multidivisional structures (M-forms)? • What will be the trade offs in regard to corporate entrepreneurship? • With whom will they be competing? • Developed economy firms • Other emerging economy firms

13. Refocusing and Internationalization • As groups reduce diversification, will they substitute product diversification for international diversification? • Group sharing of resources • Group membership may facilitate economies of capital sharing in pursuing international diversification due to internal market operations • Group knowledge sharing • Benefit from the experience of other group members compared to independent firms • Group-affiliated firms in the same foreign region are natural candidates for foreign business alliances that may be necessary for critical mass

14. Model of Institutional Change

15. The Effect of Business Group Affiliation Governance on International Diversification and Market to Book Value Kim, Kim & Hoskisson 2010 JIBS