Market-oriented institutional change and R&D investments: Do business groups enhance advantage?

Emerging market firms (EMFs) are increasingly relying on innovation to find their competitive advantage, but our understanding of how institutional change affects firm innovation has been limited. We analyzed Korean manufacturing firms from 1994 to 2006 to test the proposition that market-oriented institutional change in an emerging economy alleviates firms’ financing constraints and monitoring problems and improves the effectiveness of their innovation activities. Institutional evolution in the economy was found to affect Korean business groups and independent firms differently. Institutional change reduced the financing constraints on independent firms more than for business group affiliates in R&D investment. Independent firms, however, appeared less capable than group affiliates of translating the benefits of improved institutional environments into efficient R&D investment. This asymmetry may lead to a wider gap in the efficiency of R&D investment between business group affiliates and independent firms.     

Cash holdings and business group membership

This study examines the cash policies of business group members (i.e., affiliates). Using a panel dataset of private Belgian affiliates and comparable non-affiliated firms, the empirical results show that business group affiliates hold significantly smaller amounts of cash as compared to non-affiliated firms. This finding is consistent with the notion that affiliates can afford to keep lower cash reserves because these firms can access the internal capital market of the group. The analysis also combines affiliate level and group level data to evaluate cash drivers and shows that groups in financial distress reduce cash holdings in affiliates. However, affiliates that are more important for the group's reputation and operations maintain cash levels comparable to affiliates belonging to financially healthy groups.     

Are Group-Affiliated Firms Really More Profitable than Nonaffiliated?

The role of corporate center in influencing the economic performance of business units has been a central research topic in the industrial organization and strategic management literature. A common finding is the limited corporate and business group effects. Recently, an emerging line of studies argues that the market inefficiencies and institutional voids in emerging markets can be overcome more efficiently by large diversified business groups than by non-group small firms. Some empirical evidence also shows that non-group small firms are significantly less profitable than group-affiliated firms. This paper raises this issue by empirically investigating the influence of group affiliation on the return on assets and Tobin's q of 340 group-affiliated firms versus 423 non-group firms in Taiwan, during the period of 1997–1999. The statistical results show that group affiliation can not always create value for member firms. The size of the business group matters. When affiliated with the largest business groups, member firms indeed show improved stock market performance, but when firms are affiliated with small- and medium-sized groups, their accounting performance suffers. Findings of this paper suggest a threshold effect and a U-shape relationship between group affiliation and profitability in emerging economies.     

Group Affiliation and Entry Barriers: The Dark Side Of Business Groups In Emerging Markets

Business groups dominate the economic landscape in many economies around the world. While business groups overcome the institutional voids arising due to inefficiencies of external markets, they also possess market power, which could be economically and socially counterproductive, especially for unaffiliated firms. Drawing on the transaction cost and industrial organization economics, we examine whether the presence of business group affiliated firms in industries restricts the entry of unaffiliated firms or firms affiliated with small- and medium-size business groups. Findings based on Indian firms suggest that investments by business group affiliated firms in an industry have an inverted U-shaped relationship with the investment by unaffiliated firms. However, investments by firms affiliated with large-sized business groups have a U-shaped relationship with the investment by affiliates of small and medium business groups. These findings suggest that the market power of business groups and entry barrier relationship is contingent on the size of the business groups.     

Business group affiliation and post-acquisition performance: An extended resource-based view

Prior research on post-acquisition performance suggests positive, negative, or no wealth creation for the acquiring firms. Grounding our arguments on the extended resource-based view, the current article proposes that business group–affiliated firms leverage their affiliation advantages to attain superior long-term acquisition performance, relative to standalone firms, especially in emerging economies such as India. Additionally, we hypothesize that both within-group heterogeneity, manifested as prior group experience, group diversification, and intra-group variation in the form of horizontal ties through boards of directors, also affect the long-term post-acquisition performance of affiliated firms. The findings, obtained with a buy-and-hold abnormal returns method applied to a sample of 468 majority stake mergers and acquisitions, both domestic and cross-border, by Indian firms during 2005–2013, provide robust support for the theoretical arguments.     

Business Group Affiliation and Corporate Sustainability Strategies of Firms: An Investigation of Firms in India

In spite of an overwhelming importance of business groups (BG) in the economic development of many countries, systematic inquiry on how the BGs and their affiliated firms approach and contribute to shared value creation and sustainable development is rare. In this paper we address this research gap by investigating two related questions—do BG-affiliated firms differ from non-BG firms in their corporate sustainability strategy (CSS) and how does BG affiliation influence the relationship between stock of fungible resources and CSS of firms? Drawing from the BG literature we theorize that BG-affiliated firms tend to adopt of both environmental and social sustainability strategies more than non-BG firms. We also argue that although according to resource-based view, the stock of fungible resources of firms positively influences CSS, BG affiliation negatively moderates the relationship between stock of fungible resources and CSS of firms. Stock of fungible resources matters less for BG-affiliated firms in undertaking CSS as they have access to resources of the BG network. We test our theoretical predictions using a proprietary data set of 163 Indian publicly listed firms, out of which 76 are BG-affiliated firms belonging to 74 BGs. The data for corporate environmental and social sustainability strategies have been obtained by administering a survey instrument among the top level executives of the participating firms. We find support for our theoretical predictions that signify that BGs and their affiliates make important contributions to shared value creation and sustainable development in emerging economies like India.     

Does business group affiliation help firms achieve superior performance during industrial downturns? An empirical examination

Does affiliation with a business group enhance a firm's performance? What is the potential effect of this affiliation especially in declining economic periods? The literature provides contradictory results on this proposition. In this study, the authors explore the role of business group affiliation as a firm-specific factor and its impact in different environments, adding to our understanding of the firm-growth phenomenon. The empirical context is a large sample of firms registered in the United Kingdom, drawn from the FAME database. The analysis provides evidence for significant impact of business group affiliations on firm growth, especially during adverse economic conditions. However, the business group–firm growth relationship is moderated by firm-specific characteristics (e.g. firm size), and group specific characteristics (e.g. type of ownership and country of origin). Regarding the latter, it is specifically revealed that the impact of group affiliation is not uniform across all countries, a possibility that has been ignored in the international business literature. Among its contributions, this research introduces a novel typology of firms in growing and declining industries. The proposed typology enables us to advance propositions with respect to varying trajectories of business affiliations for firms of different size and nationality/region of origin of business groups.     

International strategy and performance—Clustering strategic types of SMEs

This paper identifies different strategic types of internationalised SMEs, in so doing providing managers and entrepreneurs with a much better understanding of the main strategic options and their relationship with the international performance of firms. We provide a theoretical analysis of strategic orientations and strategic behaviour in international SMEs, followed by an empirical investigation based on a sample of Italian SMEs. The SMEs are grouped into strategic types using cluster analysis, and the link between strategic type and international performance is subsequently analysed using logistic regression. The empirical data suggest that there are four broad strategic types, namely an entrepreneurial/growth-oriented group of firms, a customer-oriented group, a product/inward-oriented cluster, and a further group of firms that lacks strategic orientation. The characteristics of the strategic clusters are discussed, and the regression results show that a clear and proactive strategic orientation and its consistency with business strategy leads to improved international performance. This confirms the positive and highly significant role of strategic types.     

Impact of institutional reforms and industry structural factors on market returns of emerging market rivals during acquisitions by foreign firms

This paper seeks to understand the joint impact of institutional reforms and industry structural factors on market returns earned by rivals in an emerging market during foreign acquisitions. We use a sample of 238 foreign acquisitions in India during the period 2004–2013 and find empirical evidence to support the notion that institutional reforms, foreign competition and business group competition positively impact the market returns of the rivals of acquired firms. Additionally, we find that the effects of foreign competition and business group competition on rivals’ market returns are shaped by the degree of institutional reforms in the industry, indicating that firms’ market returns in emerging markets during foreign acquisitions can be better understood through the incorporation of the joint role of industry structural factors and institutional reforms.     

Determinants of Sales Destinations of U.S. Multinational Firms' Affiliates in Developing Countries

This study examines the determinants of the sales of .U.S. multinational firms' affiliates to alternative destinations, including sales to other affiliate firms in a host country and a source country markets as well as sales to other non-affiliate persons in each market. Sample host countries are drawn from developing economies where U.S. multinational firms had affiliate firms during the period 1983–1998. The results of the study reveal that affiliates of multinational firms manipulate sales to minimize international taxation. This is supported by the finding that foreign corporate income taxes: affect sales between affiliate firms favorably, unlike its impacts on sales of affiliates to non-affiliate persons in both a host country and source country markets. Considering all markets together, economic volatility and political instability have minimal impacts on sales of affiliates to other affiliate firms compared to their impacts on sales to non-affiliate persons. The results also confirm that host countries' economic policy reforms and membership in multinational investment guarantee agencies facilitate sales of affiliates to other affiliate firms.     

Communicating CSR practices – Role of internationalization of emerging market firms

Emerging markets suffer from institutional voids, and in such resource deficient economies, corporate social responsibility is given scant attention. However, when firms from emerging markets globalize, international stakeholders become suspicious about firms’ products, services, and business practices. Grounded in the liability of emergingness and legitimacy theory and using a sample of 134 manufacturing firms from one emerging market, India, this study explores how firms’ international diversification intent and market-seeking motives influence emerging markets’ firms communication of socially responsible activities as an attempt to eliminate illegitimacy. Furthermore, the study reveals that business group affiliation enhances the influence of internationalization on firms’ communication of socially responsible activities.     

The competitive response of small,independent retailers to organized retail: Study in an emerging economy

This study aims to decipher the competitive response of small, independent retailers in an emerging economy – India – to the onset of competition from large, organized retailers. The competitive behaviour is comprehended in terms of patterns of retail functional and business strategies, in further classifying the retailers into strategic groups, and finally by assessing the performance of these clusters. The study is based on a primary field survey of 605 grocery shops in two cities in India. The findings of the research point towards the presence of distinct strategies, strategic groups, and the positive impact on small retail performance of adopting distinct retail functional and business strategies.     

United we stand,divided we fall: historical trajectory of strategic renewal activities at the Scandinavian Airlines System, 1946–2012

Although the second half of the twentieth century saw the rise and fall of ‘multi-flag companies’ (MFCs) in the civil aviation industry, our understanding of how some managed to buck the trend and achieve longevity remains limited. This article advances business history and strategic management research by examining the strategic renewal activities of Scandinavian Airlines (formerly Scandinavian Airlines System [SAS]) during the period 1946–2012. The study sheds light on the key roles of private and state owners, rivals as well as banks, in critical financial phases are discussed in terms of longevity in the company. The longevity of the business stems from the leaders’ ability to develop as anticipated and respond to change in their competitive arena in close interaction with the owners. Thus, incumbent firms that strategically renew themselves prior to or during market reform, such as deregulation, enhance their chances of developing the size of their networks and revenue streams. Our main contribution to business history and strategic management literatures is the development of context-specific stages, which shed light on the evolution of strategic renewal activities and shifts from older processes and routines towards customer service and efficiency.     

Business groups and foreign direct investments by developing country firms: An empirical test in India

Drawing on recent theoretical explanations, we develop hypotheses on the relationship between business group affiliation and FDI by developing country firms. We hypothesize a positive relationship between business group affiliation and FDI overall, as well as between business group affiliation and FDI into advanced countries and into developing countries. In addition, we argue that the impact of business group affiliation on FDI varies in strength among business groups based on their size and diversification. We also empirically test the hypotheses in a sample of firms from one large and important developing country, India.     

Dancing with Wolves: How Disadvantaged Firms Fare in Asymmetric Alliances in China

This study examines how dependence asymmetry and joint dependence affect the performance of less-powerful organizations in alliances in China’s emerging market. Based on a sample of 1,127 strategic alliances between Chinese publicly listed firms, the authors found that, unlike the conventional wisdom that the dependence-advantageous firms are typically the winners in western economies, the dependence-disadvantageous firms actually benefit from asymmetric alliances in China’s sociocultural and business environment. This positive impact is further channeled by high joint dependence. In addition, partnering with firms in unrelated business areas is beneficial for the disadvantaged organizations. This research extends the interdependence mechanisms to a different sociocultural context and contributes to the literature by examining it as a condition for value creation versus value appropriation     

Heterogeneity in business groups and the corporate diversification-firm performance relationship

This article examines how heterogeneous features among business groups influence the corporate diversification-firm performance relationship. The study classifies heterogeneity along three dimensions: group size, group diversity, and share ownership. Using a sample of firms from India, the study finds some evidence that for firms affiliated to larger business groups, corporate diversification enhances firm performance. However, business group diversity does not influence the diversification-performance relationship. The impact of diversification on firm performance differs substantially owing to the heterogeneity in share ownership. The paper documents an interesting interplay between business group and ownership structure.     

Corporate governance and returns to emerging economy firm acquisitions in tax havens: An empirical test on Indian firms

Cross‐border acquisitions (CBAs) by emerging economy firms are known to yield positive stockholder returns. A nontrivial fraction of CBAs by emerging economy firms are in tax havens. We argue because of weak corporate governance in emerging economies and the secrecy afforded by tax havens, emerging economy firm CBAs in tax havens yield lower stockholder returns than their CBAs in nontax havens. We also argue the negative effect of tax haven destinations is greater for firms with greater business group ownership and for firms with greater foreign insider ownership. Furthermore, we argue the negative effect of tax haven destinations is mitigated for firms whose stock is actively traded in the market. Empirical tests in a sample of nearly 800 CBAs by Indian firms from 2002 to 2011 support our hypotheses. Our study contributes to a better understanding of stockholder returns to CBAs by emerging economy firms and the influence of corporate governance on these returns.     

Strategic Options in the Digital Era

The collapse of the dot-com euphoria coupled with the downturn in the business cycle is driving many firms to abandon their high-growth strategies in favor of current earnings. This article argues that, whilst hedging against adverse future conditions, firms must retain an ability to seize up-side business benefits by framing IT investments as strategic options. The authors use three illustrative examples to develop a strategic management process that they term the "Strategic Options Navigator". They conclude by drawing implications for CEOs, CIOs and CFOs.     

The emerging approach to employee relations in German overseas affiliates: A role model for international operation?

In light of current changes in the German industrial relations’ landscape and the wider and deeper integration of German multinationals into the world economy, this study investigates the relative importance of the country-of-origin effect in employee relations of German affiliates in an Anglo-American setting. The paper addresses important issues that relate to the wider international business domain. The comparative analysis to US affiliates in the UK and British owned firms points to a distinctively German flavored hybrid approach that integrates the best practice elements of the US model with the collective orientation of the German model. This bears a resemblance to an emerging trend in the parent companies’ home locations. The intra-German analysis revealed that affiliates of multinationals that face pressures for international integration are at the forefront of this development. The findings suggest that this might provide a suitable model of international operation for multinationals from strongly institutionalized countries.     

Dynamics of Islamic Financing in Malaysia: Causality and Innovation Accounting

This article addresses the underresearched issues of marketing challenges and business strategies/models for emerging markets. It suggests that firms need to fundamentally rethink their business models and marketing policies for emerging markets. Although strategies focusing on product affordability and availability are necessary, identification of niche market segments and making clear choices about which segments to pursue, with what value propositions will promote great success. Moreover, strategic flexibility, local sourcing, engagement of nontraditional partners, and local entrepreneurship will be important factors for successful pursuit of the emerging markets.