Title: The diversified business group as an innovative organisational model for large state-enterprise reform in China and Vietnam

Authors: Berhanu Abegaz

Addresses: Department of Economics, The College of William and Mary, Williamsburg, VA 23187-8795, USA

Abstract: The diversified business group (DBG) is a ubiquitous institution in developing economies. It is a formal inter-firm network that typically involves financial institutions, distributors and manufacturers. Groupwise diversification is viewed by some as a novel form of organisational innovation by entrepreneurial tycoons while others see it as an instrument for rent seeking. Inspired by Korean chaebols but chastened by Russian financial-industrial groups, China and Vietnam are creating business groups out of State enterprises. After reviewing the theory and cross-country experience, this paper concludes that selective economic grouping can be an efficient transitional organisation. DBGs can facilitate government monitoring, exploitation of scale economies for scarce managerial talent, better risk management, and realisation of network and scope economies. Success in incubating national champions is, however, predicated on a high technocratic capability for restraining abuse of market power, nurturing competitive market institutions, properly sequencing large-scale privatisation, and crafting WTO-compatible industrial and technology policies.

Keywords: diversified business group; organisational innovation; late-industrialisation; state enterprises; China; Vietnam; state enterprise reform; developing economies; developing countries; inter-firm networks; groupwise diversification.

DOI: 10.1504/IJEIM.2005.006995

International Journal of Entrepreneurship and Innovation Management, 2005 Vol.5 No.5/6, pp.379 - 400

Published online: 02 May 2005 *

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