Explaining Diversified Business Groups Failure & Focused Business Groups Success in India
XLRI Jamshedpur, Working Paper Series No. 2001-07
11 Pages Posted: 6 Jun 2006
Date Written: July 2001
In most countries of the developing world such as India, Korea, and Thailand, business groups (or business houses) dominate the industrial scenario. We studied the linkage between financial performance and corporate characteristics (including their product diversity) of 240 large Indian business groups for a time span spanning 12 years (1987 to 1999). We found that as in the developed world, most conglomerates are value destroyers in the developing world too. Using large number of cases and examples, this paper explains the failure of diversified business groups and analyses the reasons behind the success of focused business groups. Presence in large number of product portfolios with poor product market power, no distinct economies or even strategic advantage in any of them has left most of the diversified groups destroying shareholder value and having poor accounting profitability in comparison to their focused counter parts.
Keywords: Business Groups, Business Networks, Diversification, Conglomerate, Performance, Product Diversification, International Diversification, India
JEL Classification: L10, M10, L20, G34
Suggested Citation: Suggested Citation