Why large local conglomerates may not work in emerging markets

Abstract

Some strategy authors suggest that in an emerging market a local conglomerate enjoys certain potential advantages over a smaller focused firm. It can leverage its corporate image to build customer loyalty and raise funds from the capital market. It can mobilise resources from within the group companies to invest in enhancing the corporate image, in developing its own management‐training centre, and for liaison with the government and bureaucracy. It can also avoid retrenchment of surplus employees by transferring them across the group companies. The authors, however, contend that many of the advantages mentioned above cannot be realised in practice and the top management finds it difficult to effectively manage a large conglomerate. They suggest a model, which will help a conglomerate decide which businesses to retain or divest. They also highlight certain strategies adopted by Indian firms to combat foreign competition in the domestic market.