Business group
Business group or corporate group"is a coalition of companies that are legally separate but bound together by a controlling firm either directly or indirectly through economic or social connections (Granovetter, 1995; Fan et al., 2016). Many prior studies (e.g., Keister, 1998, 2009; Carney et al., 2009; Guest and Sutherland, 2010; He et al., 2013) have investigated the effect of business groups on their member firms' financial performance, but the impact of groups on member firms' performance in corporate social responsibility (CSR) has remained unexplored." [1]
It is a set of enterprises acting in a given sector that implement a similar competitive strategy. This similar strategy can be determined by key success factors common for a given industry (such as specialization, brand, distribution channels, product quality, technical leadership, vertical integration, services, price, etc.), although they occur in individual companies in a different form. The characteristics of closer and further competitors allow them to be qualified as business group. However, business groups are not stable entity, in time competition for dominance on the market is constantly going on and new actors can enter the business group of leave them. Main factors considered during business group identification are:
- resources and skills possessed by the members of the group
- risk attitude and business goals
- barriers of mobility
- structural changes in the sector
They are the most common in emerging markets (such as Brazil, India, Indonesia, Thailand and Korea) and also in some developed one, for example Italy and Sweden. Groups may be different according to form. They can be horizontally-linked or vertically-controlled ("pyramids"). "Group firms can be related to each other through family and social ties, a common sense of identity, trade relations, and other dimensions." In some countries they may be politically important also[2]
Interaction with government
"Governments have enough power to influence firms’ strategic choices, operations and processes (Pearce, 2001), but business groups are not passive elements in this context. Therefore, there is an interdependence and an ongoing exchange between groups’ actions and government policies (Salisbury, 1969)". They can use different ways to influence government decisions to accomplish better performance and competitive advantages[3]
Examples of Business group
- Mitsubishi UFJ Financial Group (MUFG): MUFG is a Japanese multinational banking and financial services company headquartered in Chiyoda, Tokyo. It is the world's fifth largest bank by total assets and the largest bank in Japan. It is a member of the Mitsubishi group, which is one of the largest Japanese business conglomerates.
- Samsung Group: Samsung Group is a South Korean multinational conglomerate headquartered in Samsung Town, Seoul. It comprises numerous affiliated businesses, most of them united under the Samsung brand, and is the largest South Korean chaebol. It was founded by Lee Byung-chul in 1938 as a trading company.
- Tata Group: The Tata Group is an Indian multinational conglomerate headquartered in Mumbai, Maharashtra, India. It was founded in 1868 by Jamsetji Tata and is one of the oldest and largest business conglomerates in India. It comprises over 30 companies and operations in more than 100 countries across six continents.
Advantages of Business group
Business groups are advantageous for companies as they offer many benefits. These include:
- Economies of Scale: Business groups offer their members access to larger economies of scale and the ability to achieve greater cost savings due to the shared resources and facilities.
- Access to Capital: Business groups provide their members access to capital which can be used to finance projects, investments, and acquisitions.
- Risk Management: Business groups can help to reduce the risks associated with operating in a competitive market by providing advice and support.
- Access to Human Resources: Business groups provide access to a pool of skilled human resources, as well as access to experienced and knowledgeable senior management.
- Networking Opportunities: Business groups offer their members the opportunity to network with other companies and potential partners.
- Diversification: Business groups can help to diversify their members’ portfolios by providing access to different industries and markets.
- Improved Performance: By leveraging the resources of the group, businesses can improve their performance and increase their profitability.
Limitations of Business group
One of the limitations of business groups is that they can be difficult to manage due to the complexity involved in coordinating multiple firms within the group. Additionally, the lack of transparency and accountability within the group can cause problems, as it limits the ability of investors, stakeholders, and other outside parties to accurately assess the performance of the group. Furthermore, the potential for conflicts of interest within the group can lead to misallocation of resources, as well as a lack of trust between the firms in the group and their partners. Finally, business groups can be vulnerable to external economic and political conditions, which can threaten the group’s stability
- Lack of transparency and accountability can cause problems for investors and other outside parties
- Conflicts of interest can lead to misallocation of resources
- Vulnerability to external economic and political conditions can threaten the group’s stability.
The following are other approaches related to Business groups:
- Economic Connections: Business groups are connected economically, through inter-company lending, equity investments, and shared resources. This allows for the sharing of resources, expertise, and technology, which can lead to increased efficiency and improved performance.
- Social Connections: Business groups are also connected socially, through networks of family and friends. These networks can offer valuable contacts, advice, and access to resources that may be difficult to gain from the outside.
- Strategic Alliances: Business groups may also form strategic alliances with other groups or companies. This enables them to combine resources and expertise to create a more competitive position in the market.
In summary, business groups are characterized by economic, social, and strategic connections that enable them to pool resources, expertise, and contacts to gain a competitive edge in the market.
| Business group — recommended articles |
| Syndicate — Direct foreign investment — International joint venture — Large organizations — Social capital theory — Importance of international business — Transaction cost theory — Economic network — Management company |
References
- Carney, M., Gedajlovic, E. R., Heugens, P. P., Van Essen, M., & Van Oosterhout, J. (2011). Business group affiliation, performance, context, and strategy: A meta-analysis. Academy of Management Journal, 54(3), 437-460.
- Elango B., Pattnaik C., Wieland J. R., (2016). 2016.02.036 Do business group characteristics matter? An exploration on the drivers of performance variation Journal of Business Research, Vol. 69, Iss. 9, ISSN 0148-2963
- Friedman, J., & Rowlands, M. J. (1977). The Evolution of Social Systems (p. pp-201). Duckworth: London
Author: Natalia Pęgiel
