Abstract
How do companies and government interactions affect business groups’ decisions on growth? So far, empirical evidence is based on qualitative data that do not explain how political strategies affect the expansion or diversification of business groups. Our main contribution is to discuss the conditions that affect their growth. To do this, we conducted an in-depth field study in six business groups, and examined 17 growth decisions. Four categories (origin of growth, historical relationships, business group's scope and use of specific political strategies) emerged from the analysis, based on interviews with managers and on 480 secondary data sources. We further applied the qualitative comparative method to test our categories as conditions for growth. We found that a historical relationship between the group and the government is a necessary but insufficient condition for growth through diversification. To foresee diversification, historical relationship must be aligned with government's political interest, or with the use of one or a combination of specific political tactics. We found no set of variables that can fully explain growth through expansion.
Highlights
A business group is an organizational model in which a set of legally independent firms are held together through a stable relationship, operating strategically in different sectors and under common control and ownership (Colpan & Hikino, 2010; Cuervo-Cazurra, 2006; Khanna & Yafeh, 2007)
To go beyond existing empirical contributions that show how business groups can benefit from political connections, the gap that we address, in the political economy perspective, is a deeper investigation on the set of conditions that underlie the two types of business groups’ growth – expansion and diversification
We describe the QCA analysis, showing the sets of conditions used by business groups to achieve diversification or expansion
Summary
A business group is an organizational model in which a set of legally independent firms are held together through a stable relationship, operating strategically in different sectors and under common control and ownership (Colpan & Hikino, 2010; Cuervo-Cazurra, 2006; Khanna & Yafeh, 2007). The political economy approach (Aoki, 2001; Khanna & Fisman, 2004; Schneider, 2009; Yiu et al, 2007) offers another explanation for growth. According to this perspective, business groups diversify and expand as a result of their use by governments for promoting public policies. The business group option is a strategic fit to government requirements (Yiu et al, 2007), and a means to open or expand new sectors and markets that serve both parties
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