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“These conglomerates exist in emerging economies but they are
not all the same,” Guillén says. “In Korea, for example, they are all
powerful and very prominent. In other countries they are not as
important. I have been trying to look at their histories, see how they
have grown or shrunk over time and then figure out exactly what the
conditions are that give rise to their success or failure.”
Guillén takes a “resource-based” approach in his analysis of business
groups. He divides resources into three types – inputs (labor, capital
and raw materials), process-related knowledge (technology and operations
proficiency) and markets (distribution channels and contracts
with foreign and domestic customers or with the state). However, having
the necessary resources is not enough for a business group to
sustain its competitive advantage over time, Guillén argues. Also
necessary are “certain limits to competition,” especially in the areas
of foreign trade and foreign direct investment. Guillén’s research
shows that business groups thrive in countries following an “asymmetric
development strategy” combining high levels of exports and
outward investment with low levels of imports and inward investment
(e.g. Korea). They decline in countries following a “symmetric development
strategy” with high levels of trade and investment in both
directions (e.g. Spain).
Looked at another way, host countries that restrict foreign multi-nationals
provide “opportunities for local entrepreneurs to start
diversifying across industries,” especially if it is feasible for them to simply
buy technology from foreign multinationals and manufacture the
goods – ranging from TV sets to cars to memory chips – themselves.
Conversely, to the extent that countries or governments dismantle
this protectionism, business groups find it necessary to refocus. The
result is that they become proficient in a few areas rather than
“mediocre in 20.” This, in turn, has important implications for governments
and managers alike, as well as the country’s overall success
within the larger global environment, notes Guillén.
First, “when governments give advantages to certain entrepreneurs
or firms and restrict access by foreigners they should expect the growth
of powerful business groups that will most likely try to derail attempts
at liberal economic reform.”
Second, if the government encourages local and foreign firms to
focus on the domestic market alone, without engaging in exports or
outward investment, it will be encouraging business groups to enter
into coalitions with foreign multinationals to share this domestic
market. “Such an ‘inward looking’ strategy is not a particularly
healthy one for the country at large,” Guillén notes. Furthermore,
since multinationals in this situation are not encouraged to export
their products, they will try to maximize their profits by charging high
prices for domestic goods and services. “Consumers are the losers,”
Guillén adds.
Business groups emerge in part because of their connections to the
government, Guillén says. “If you cut these ties, as the Koreans are
trying to do, but don’t open up competition by letting foreign companies
operate without restrictions, then you won’t see these business
groups decline.” It’s one of the reasons that economic reforms in several
Latin American countries – Argentina, Brazil, Colombia – have
not eroded the position of the business groups: They are moving into
industries not fully open to foreigners, such as telecommunications,
electricity and natural resources.
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