Business groups are an organizational model in which collections of legally independent firms bounded together with formal and informal ties use collaborative arrangements to enhance their collective welfare. Among the different varieties of business groups, diversified business groups that exhibit unrelated product diversification under central control, and often containing chains of publicly listed firms, are the most-studied type in the management literature. The reason is that they challenge two traditionally held assumptions. First, broad and especially unrelated diversification have a negative impact on performance, and thus business groups should focus on a narrow scope of related businesses. Second, such diversification is only sustainable in emerging economies in which market and institutional underdevelopment are more common and where business groups can provide a solution to such imperfections. However, a historical perspective indicates that diversified business groups are a long-lived organizational model and are present in emerging and advanced economies, illustrating how business groups adapt to different market and institutional settings. This evolutionary approach also highlights the importance of going beyond diversification when studying business groups and redirecting studies toward the evolution of the group structure, their internal administrative mechanisms, and other strategic actions beyond diversification such as internationalization.
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Business Groups as an Organizational Model
Asli M. Colpan and Alvaro Cuervo-Cazurra
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Business History in International Business
Teresa da Silva Lopes
Historical research on the multinational enterprise has long been important in international business studies. When the discipline of international business first developed in the late 1950s, historical evidence was frequently used to build generalizations and propose theories. However, over time, that tradition eroded, as the discipline moved toward using more quantitative and econometric reasoning. International business and business history share important commonalities, such as the topics they address. These include: multinational patterns of international trade and foreign investment; the boundaries and competitiveness of the multinational enterprise; changes in organizational strategy and structure of multinational enterprises and the connections between the two; coordination and management of the activities of the multinational enterprise; impact of multinationals on knowledge and capital flows in host countries; and investment, resilience, and survival in high-risk environments. Nonetheless, the approaches followed can be quite distinct. While both disciplines consider the firm and other institutional forms as the unit of analysis, the way context and the environment are integrated in the analysis, the methodologies followed, the types of comparative analysis carried out, the temporal dimensions adopted, and the way in which theory is used are quite distinct. There are possible ways forward for international business history to be more integrated and provide new dimensions in international business studies. These include using history as a generator of theory to understand phenomena such as the origins of competitiveness and as a way to uncover phenomena that can be fully understood only after the situation has occurred, such as the impact of entrepreneurship on economic development; as a way to check false claims that certain phenomena is new; and to inform discussions on complex phenomena and grand challenges such as globalization and deglobalization, investment in high risk environments, and climate change.
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Immigrant Entrepreneurship: A Typology Based on Historical and Contemporary Evidence
Hartmut Berghoff
Immigrant entrepreneurs are different, and they are everywhere. They can be unambiguously distinguished from entrepreneurs without a migration background. They operate under distinct conditions and respond to unique opportunities and challenges. They have specific motivational, economic, and social resources at their disposal, for example, ethnic solidarity and international networks. Their knowledge of languages and cultures, as well as the high pressure to integrate themselves into a new society, can be factors that stimulate entrepreneurship and innovation. It is hard to find countries with no immigrant entrepreneurs. In many places like the United States, Canada, or South East Asia, they play a substantial economic role.
The ubiquity, dynamism, and significance of immigrant entrepreneurs has led to a spate of research projects since the 1990s, especially by economic sociologists and ethnologists, but also by management scholars and historians. On the basis of their work, the article distinguishes six different ideal types of immigrant entrepreneurs, even though these categories are neither clear-cut nor mutually exclusive.
Necessity entrepreneurs react to blocked careers in other areas and often set up small, precarious businesses, out of which in exceptional cases more viable companies emerge. Diaspora merchants are part of commercial networks of people with the same ethnic background who live in foreign countries and trade with each other. Transnational entrepreneurs are not necessarily part of networks and do not always engage in mercantile activities. This category also encompasses individual actors and industrial activities. They are characterized by the ability to mobilize resources in several countries and facilitate activities between different countries. Middleman minorities stand between the majority society and third parties, often minorities. They fill niches that are left by indigenous businesses, which consider these areas as unattractive. Entrepreneurs in ethnic enclave economies live and work with their co-ethnics in neighborhoods defined by their group. Their main function is to cater to their own communities, often with ethnic products such as food or publications from their countries of origin. Refugee entrepreneurs leave their home country involuntarily, often driven out by violence and expropriation. In most cases their emigration is unprepared. Starting conditions in the country of destination are unfavorable. Conversely, the pressure for social integration is pronounced and can act as an impulse for self-employment. There are, however, cases in which refugees are consciously patronized or even summoned by the governments of the receiving countries, turning them into a highly privileged group.
Article
Privatization of State-Owned Enterprises
David Parker
Theoretical developments in economics, alongside evidence that state-owned enterprises were often inefficient and unresponsive to consumers, led to a substantial program of privatizations from the 1980s. Privatization can take a number of forms, from the outright sale of state-owned assets to private investors to forms of public-private partnership, such as contracting out and franchising of public services. Privatization was promoted in both developed and developing countries, and large-scale privatizations occurred in Europe, Latin America, China, and the former communist economies of Central and Eastern Europe, in particular. Privatization revenues rose substantially from the late 1980s internationally. Taking the years 1988 to 2016, revenues from sales are estimated to have been around $3,634bn. In terms of main sectors of the economy affected, privatizations have particularly occurred in telecommunications, transport and logistics (mainly railways, airlines, and airports), other utility businesses (especially energy companies), and finance. Numerous empirical studies suggest that the performance of the privatized businesses and services has been mixed. While privatization has led to some impressive economic gains, in a number of countries, wider governance issues relating to political and legal systems have led to disappointing outcomes. Privatization has not always led to the removal of state interference in the management of businesses and services. Corruption and cronyism have blighted a number of privatizations. State sell-offs have led to income and wealth redistribution with gainers and losers from the process. Some privatizations have led to spectacular capital gains for investors. The impact of privatization on employment and working conditions remains unclear.
There are a number of issues that deserve further investigation, namely the consequences of privatization for technological change and innovation, competition policy, and income and wealth distribution. A further subject for investigation is how the effective and efficient management of state-owned enterprises can be best achieved. The boundary between the private and public sectors remains fluid, with a number of enterprises returning to state ownership as political and economic conditions change.
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Reinsurance Function and Market
Niels Viggo Haueter
The function of reinsurance is to absorb the risks of the direct insurance industry. This has two main purposes: (i) reinsurance capital allows direct insurers to write more business, and (ii) it protects them against balance sheet fluctuations caused by large and unexpected losses. The reinsurance market is served by a relatively small group of some 200 professional reinsurers. However, throughout history a variety of alternative forms appeared that could be used to distribute risks beyond one insurer. Co-insurance, for example, was one of the main forms of secondary risk spread in the marine community for centuries. It dominated the London market and was, to a large degree, responsible for the late and restricted development of reinsurance companies in Anglo-Saxon markets. The emergence of ever-larger risks in the 20th century forced the industry to focus increasingly on dealing with large losses and capping the maximum exposures of insurers. This made the business more financial, a trend which received a new boost with the advent of insurance-linked securities (ILSs) in the 1990s. Since then, the market for alternative risk transfer (ART) has grown, not least with the advent of new investors such as different investment funds that provide alternative risk capital. However, towards the 2020s, professional reinsurers started gaining ground again after a series of large natural catastrophes and with the continuous rise of Asian economies. Since the 2010s, growth opportunities for reinsurance are sought mostly in emerging markets and by making more risks insurable. Emerging market growth, however, is challenging and the gap between insured and insurable economic losses is still widening. Since the turn of the millennium, the industry has invested in finding solutions to close this so-called protection gap. Professional reinsurers are also seeking to develop new markets by making emerging risks such as cybercrime insurable. Yet such dynamic risks are fundamentally different from older static risks. Solutions are sought in applying methods that already made natural catastrophes insurable, modelling techniques, and ART products.
Article
The Swiss Watch Industry
Pierre-Yves Donzé
The Swiss watch industry has enjoyed uncontested domination of the global market for more than two decades. Despite high costs and high wages, Switzerland is the home of most of the largest companies in this industry. Scholars in business history, economics, management studies, and other social sciences focused on four major issues to explain such success.
The first is product innovation, which has been viewed as one of the key determinants of competitiveness in the watch industry. Considerable attention has been focused on the development of electronic watches during the 1970s, as well as the emergence of new players in Japan and Hong Kong. Yet the rebirth of mechanical watches during the early 1990s as luxury accessories also can be characterized as a product innovation (in this case, linked to marketing strategy rather than pure technological innovation).
Second, brand management has been a key instrument in changing the identity of Swiss watches, repositioning them as a luxury business. Various strategies have been adopted since the early 1990s to add value to brands by using culture as a marketing resource.
Third, the evolution of the industry’s structure emphasizes a deep transformation during the 1980s, characterized by a shift from classical industrial districts to multinational enterprises. Concentration in Switzerland, as well as the relocation abroad of some production units through foreign direct investment (FDI) and independent suppliers, have enabled Swiss watch companies to control manufacturing costs and regain competitiveness against Japanese firms.Fourth, studying the institutional framework of the Swiss watch industry helps to explain why this activity was not fully relocated abroad, unlike most sectors in low-tech industries. The cartel that was in force from the 1920s to the early 1960s, and then the Swiss Made law of 1971, are two major institutions that shaped the watch industry.
