Skip to main content
SpringerLink
Log in

Diversification, resource concentration, and business group performance: Evidence from Taiwan

  • Published:
Asia Pacific Journal of Management Aims and scope Submit manuscript

Abstract

This study examines the impact of resource configuration, specifically diversification and resource concentration, on the performance of business groups in an emerging economy. Diversification indicates the product/market portfolio of a business group, while resource concentration illustrates the degree of resource dispersion among different affiliates within a business group. Based on the data collected from 125 Taiwanese business groups from 2004 to 2007, this study finds that resource concentration positively influences the performance of business groups, while diversification has a negative impact on the performance of business groups. The findings of this study provide support to the resource-based view and the market power perspective of business groups. This study also finds that the appropriate organizational form may change over time, confirming the institution-based view of business groups in emerging economies.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

Notes

  1. Generally speaking, a multibusiness firm is a legally independent firm with various business units regardless of its origin, whether the unit is as a result of internal development or acquisitions; all of the business units are the same company in law, coordinated by central ownership, and formal authority. In contrast, a business group comprises a set of companies that, though legally independent, are bound together by a constellation of formal and informal ties and are accustomed to taking coordinated actions (Chung, 2001; Granovetter, 1994; Guillén, 2000). Each affiliated company is a distinct legal entity that publishes its own financial statements, has its own board of directors, and is responsible to its own shareholders.

  2. We would like to thank an anonymous reviewer for this suggestion.

  3. We would like to thank an anonymous reviewer for suggesting the references.

  4. The horizontal mode means that a business group sets up a new affiliated company to take full advantage of slack resources within the group. The vertical mode refers to the establishment of a new affiliated company in the upstream or downstream of the value chain as the size of the business group expands. The hybrid mode is a blend of the others rather than the horizontal or vertical mode alone.

  5. Because of serious omissions of business groups-affiliates’ information, we cannot measure the independent variables effectively and thus don’t include the sample prior to 2004.

  6. To confirm whether our findings are subject to different industry categories, we also estimated the regression equations by segmenting the full sample into two categories: the information/electronics industry, and the manufacturing/services industry. Overall, the results of the subsample regressions are similar to those of the pooled sample, confirming the robustness of our research findings.

  7. We would like to thank two anonymous reviewers for suggesting the additional analysis.

References

  • Ahn, M. J., & York, A. S. 2011. Resource-based and institution-based approaches to biotechnology industry development in Malaysia. Asia Pacific Journal of Management. doi:10.1007/s10490-009-9147-2.

  • Amsden, A. H., & Chu, W. 2009. Beyond late development: Taiwan’s upgrading policies. Cambridge: MIT Press.

    Google Scholar 

  • Arnold, D. J., & Quelch, J. A. 1998. New strategies in emerging markets. Sloan Management Review, 40(1): 7–20.

    Google Scholar 

  • Barney, J. B. 1991. Firm resources and sustained competitive advantage. Journal of Management, 17(1): 99–120.

    Article  Google Scholar 

  • Berger, P., & Ofek, E. 1995. Diversification’s effect on firm value. Journal of Financial Economics, 37(1): 39–65.

    Article  Google Scholar 

  • Carney, M. 2004. The institutions of industrial restructuring in Southeast Asia. Asia Pacific Journal of Management, 21(1): 171–188.

    Article  Google Scholar 

  • Chakrabarti, A., Singh, K., & Mahmood, I. 2007. Diversification and performance: Evidence from East Asian firms. Strategic Management Journal, 28(2): 101–120.

    Article  Google Scholar 

  • Chandler, A. D. 1962. Strategy and structure: Chapters in the history of the industrial enterprises. Cambridge: MIT Press.

    Google Scholar 

  • Chang, S. J., & Choi, U. 1988. Strategy structure and performance of Korean business group. The Journal of Industrial Economics, 37(2): 141–158.

    Article  Google Scholar 

  • Chang, S. J., & Hong, J. 2000. Economic performance of group-affiliated companies in Korea: Intragroup resource sharing and internal business transactions. Academy of Management Journal, 43(3): 429–448.

    Article  Google Scholar 

  • Chatterjee, S., & Wernerfelt, B. 1991. The link between resources and type of diversification: Theory and evidence. Strategic Management Journal, 12(1): 33–48.

    Article  Google Scholar 

  • Child, J. 1994. Management in China during the age of reform. Cambridge: Cambridge University Press.

    Google Scholar 

  • Choi, J. P., & Cowing, T. G. 2002. Diversification, concentration and economic performance: Korean business groups. Review of Industrial Organization, 21(3): 271–282.

    Article  Google Scholar 

  • Chou, T. C. 1988. Concentration and profitability in a dichotomous economy: The case of Taiwan. International Journal of Industrial Organization, 6(4): 409–428.

    Article  Google Scholar 

  • Chu, W. 1999. The changing pattern of diversification strategy of business groups in Taiwan. Sun Yat-Sen Management Review, International Issue: 689–712.

  • Chung, C. N. 2001. Markets, culture and institutions: The emergence of large business groups in Taiwan, 1950s–1970s. Journal of Management Studies, 38(5): 629–745.

    Article  Google Scholar 

  • Claessens, S., Djankov, S., & Lang, L. H. P. 2000. The separation of ownership and control in East Asian corporations. Journal of Financial Economics, 52(1–2): 81–112.

    Article  Google Scholar 

  • Delios, A., & Beamish, P. W. 1999. Geographic scope, product diversification, and the corporate performance of Japanese firms. Strategic Management Journal, 20(8): 711–727.

    Article  Google Scholar 

  • Dess, G. G., Gupta, A., Hennart, J. F., & Hill, C. W. L. 1995. Conducting and integrating strategy research at the international, corporate, and business levels: Issues and directions. Journal of Management, 21(3): 357–393.

    Article  Google Scholar 

  • Dundas, K. N. M., & Richardson, P. R. 1982. Implementing the unrelated product strategy. Strategic Management Journal, 3(4): 287–301.

    Article  Google Scholar 

  • Eisenhardt, K. 1989. Agency theory: An assessment and review. Academy of Management Review, 14(1): 57–74.

    Google Scholar 

  • Gertner, R. H., Scharfstein, D. S., & Stein, J. C. 1994. Internal versus external capital markets. Quarterly Journal of Economics, 109(4): 1211–1230.

    Article  Google Scholar 

  • Golden, B. R., & Ma, H. 2003. Mutual forbearance: The role of intrafirm integration and rewards. Academy of Management Review, 28(3): 479–493.

    Google Scholar 

  • Granovetter, M. 1994. Business groups. In N. J. Smelser & R. Swedberg (Eds.). The handbook of economic sociology: 453–475. New York: Russell Sage.

    Google Scholar 

  • Grant, R. M. 1996. Toward a knowledge-based theory of the firm. Strategic Management Journal, 17(Winter Special Issue): 109–122.

    Google Scholar 

  • Grant, R. M., Jammine, A. P., & Thomas, H. 1988. Diversity, diversification and profitability among British manufacturing companies, 1972–84. Academy of Management Journal, 31(4): 771–801.

    Article  Google Scholar 

  • Greene, W. H. 1997. Econometric analysis. Upper Saddle River, NJ: Prentice-Hall.

    Google Scholar 

  • Guillén, M. F. 2000. Business groups in emerging economies: A resource-based view. Academy of Management Journal, 43(3): 362–380.

    Article  Google Scholar 

  • Gunduz, L., & Tatoglu, E. 2003. A comparison of the financial characteristics of group affiliated and independent firms in Turkey. European Business Review, 15(1): 48–54.

    Article  Google Scholar 

  • Gupta, A. K. 1987. SBU strategies, corporate-SBU relations, and SBU effectiveness in strategy implementation. Academy of Management Journal, 30(3): 477–500.

    Article  Google Scholar 

  • Hill, C. W. L. 1995. Diversification and economic performance: Bring structure and corporate management back into the picture. In R. Rumelt, D. Schendel & D. Teece (Eds.). Fundamental issues in strategy, 297–321. Cambridge: Harvard Business School Press.

  • Hill, C. W. L., & Hansen, G. 1991. A longitudinal study of the causes and consequences of changes in diversification in the US pharmaceutical industry 1977–1986. Strategic Management Journal, 12(3): 187–199.

    Article  Google Scholar 

  • Hill, C. W. L., Hitt, M. A., & Hoskisson, R. E. 1992. Cooperative versus competitive structure in related and unrelated firms. Organization Science, 3(4): 501–521.

    Article  Google Scholar 

  • Hoskisson, R. E. 1987. Multidivisional structure and performance: The contingency of diversification strategy. Academy of Management Journal, 30(4): 625–644.

    Article  Google Scholar 

  • Hoskisson, R. E., Eden, L., Lau, C. M., & Wright, M. 2000. Strategy in emerging economies. Academy of Management Journal, 43(3): 249–267.

    Article  Google Scholar 

  • Hoskisson, R. E., Johnson, R. A., Tihanyi, L., & White, R. E. 2005. Diversified business groups and corporate refocusing in emerging economies. Journal of Management, 31(6): 941–965.

    Article  Google Scholar 

  • Hsiao, C. 1986. Analysis of panel data. Cambridge: Cambridge University Press.

    Google Scholar 

  • Jacquemin, A. P., & Berry, C. H. 1979. Entropy measure of diversification and corporate growth. The Journal of Industrial Economics, 27(4): 359–369.

    Article  Google Scholar 

  • Jones, G., & Hill, C. 1988. Transaction cost analysis of strategy-structure choice. Strategic Management Journal, 9(2): 159–172.

    Article  Google Scholar 

  • Khanna, T., & Palepu, K. 1997. Why focused strategies may be wrong for emerging markets. Harvard Business Review, 75(4): 41–51.

    Google Scholar 

  • Khanna, T., & Palepu, K. 2000. Is group affiliation profitable in emerging markets? An analysis of diversified Indian business groups. Journal of Finance, 55(2): 867–891.

    Article  Google Scholar 

  • Khanna, T., & Rivkin, J. W. 2001. Estimating the performance effects of business groups in emerging markets. Strategic Management Journal, 22(1): 45–74.

    Article  Google Scholar 

  • Kim, H., Hoskisson, R. E., Tihanyi, L., & Hong, J. 2004. The evolution and restructuring of diversified business groups in emerging markets: The lessons from chaebols in Korea. Asia Pacific Journal of Management, 21(1): 25–48.

    Article  Google Scholar 

  • Kock, C. J., & Guillén, M. F. 2001. Strategy and structure in developing countries: Business groups as an evolutionary response to opportunities for unrelated diversification. Industrial and Corporate Change, 10(1): 77–113.

    Article  Google Scholar 

  • Kogut, B., & Zander, U. 1992. Knowledge of the firm, combinative capabilities, and the replication of technology. Organization Science, 3(3): 383–397.

    Article  Google Scholar 

  • Leff, N. H. 1978. Industrial organizations and entrepreneurship in the developing countries: The economic groups. Economic Development and Cultural Change, 26(4): 661–675.

    Article  Google Scholar 

  • Li, M., Ramaswamy, K., & Pécherot Petitt, B. S. 2006. Business groups and market failures: A focus on vertical and horizontal strategies. Asia Pacific Journal of Management, 23(4): 439–452.

    Article  Google Scholar 

  • Li, M., & Wong, Y. Y. 2003. Diversification and economic performance: An empirical assessment of Chinese firms. Asia Pacific Journal of Management, 20(2): 243–265.

    Article  Google Scholar 

  • Liebeskind, J. P. 2000. Internal capital markets: Benefits, costs, and organizational arrangements. Organization Science, 11(1): 58–76.

    Article  Google Scholar 

  • Lincoln, J., Gerlach, M., & Ahmadjian, C. 1996. Keiretsu network and corporate performance in Japan. The American Journal of Sociology, 61(1): 67–88.

    Article  Google Scholar 

  • Luo, X., & Chung, C. N. 2005. Keeping it all in the family: The role of particularistic relationships in business group performance during institutional transition. Administrative Science Quarterly, 50(3): 404–439.

    Article  Google Scholar 

  • Luo, X., Chung, C. N., & Sobczak, M. 2009. How do corporate governance model differences affect foreign direct investment in emerging economies?. Journal of International Business Studies, 40(3): 444–567.

    Article  Google Scholar 

  • Markides, C. C. 1995. Diversification, restructuring and economic performance. Strategic Management Journal, 16(2): 101–118.

    Article  Google Scholar 

  • Markides, C. C., & Williamson, P. J. 1994. Related diversification, core competences and corporate performance. Strategic Management Journal, 15(S2): 149–165.

    Article  Google Scholar 

  • Montgomery, C. A. 1994. Corporate diversification. The Journal of Economic Perspectives, 8(3): 163–178.

    Article  Google Scholar 

  • Nakatani, I. 1984. The economic role of financial corporate grouping. In M. Aoki (Ed.). The economic analysis of the Japanese firm: 227–258. Amsterdam: North-Holland.

    Google Scholar 

  • North, C. D. 1990. Institutions, institutional change, and economic performance. Cambridge: Cambridge University Press.

    Book  Google Scholar 

  • Palepu, K. 1985. Diversification strategy, profit performance, and the entropy measure of diversification. Strategic Management Journal, 6(3): 239–255.

    Article  Google Scholar 

  • Palich, L. E., Cardinal, L. B., & Miller, C. C. 2000. Curvilinearity in the diversification-performance linkage: An examination of over three decades of research. Strategic Management Journal, 21(2): 155–174.

    Article  Google Scholar 

  • Peng, M. W. 2002. Towards an institution-based view of business strategy. Asia Pacific Journal of Management, 19(2): 251–267.

    Article  Google Scholar 

  • Peng, M. W., & Delios, A. 2006. What determines the scope of the firm over time and around the world? An Asia Pacific perspective. Asia Pacific Journal of Management, 23(4): 385–405.

    Article  Google Scholar 

  • Peng, M. W., & Heath, P. S. 1996. The growth of the firm in planned economies in transition: Institutions, organizations, and strategic choice. Academy of Management Review, 21(2): 492–528.

    Google Scholar 

  • Peng, M. W., Lee, S. H., & Wang, D. Y. L. 2005. What determines the scope of the firm over time? A focus on institutional relatedness. Academy of Management Review, 30(3): 622–633.

    Article  Google Scholar 

  • Penrose, E. 1959. The theory of growth of the firm. New York: Wiley.

    Google Scholar 

  • Porter, M. E. 1987. From competitive advantage to corporate strategy. Harvard Business Review, 65(13): 43–59.

    Google Scholar 

  • Rajan, R., Servaes, H., & Zingales, L. 2000. The cost of diversity: The diversification discount and inefficient investment. Journal of Finance, 55(1): 35–80.

    Article  Google Scholar 

  • Scott, W. R. 1995. Institutions and organizations. Thousand Oaks, CA: Sage.

    Google Scholar 

  • Teece, D. J. 1982. Towards an economic theory of the multiproduct firm. Journal of Economic Behavior and Organization, 3(1): 39–63.

    Article  Google Scholar 

  • White, S. 2004. Stakeholders, structure, and the failure of corporate governance reform initiatives in post-crisis Thailand. Asia Pacific Journal of Management, 21(1): 103–122.

    Article  Google Scholar 

  • Williamson, O. E. 1985. The economic institutions of capitalism: Firms, markets, relational contracting. New York: Free Press.

    Google Scholar 

  • Wright, M., Filatotchev, I., Hoskisson, R. E., & Peng, M. W. 2005. Strategy research in emerging economies: Challenging the conventional wisdom. Journal of Management Studies, 42(1): 1–33.

    Article  Google Scholar 

  • Yiu, D., Bruton, G. D., & Lu, Y. 2005. Understanding business group performance in an emerging economy: Acquiring resources and capabilities in order to prosper. The Journal of Management Studies, 42(1): 183–206.

    Article  Google Scholar 

  • Yu, T., & Cannella, A. A., Jr. 2009. Rivalry deterrence in international markets: Contingencies governing the mutual forbearance hypothesis. Academy of Management Journal, 52(1): 127–147.

    Article  Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Department of Business Management, National Dong Hwa University, 1, Sec. 2, Da Hsueh Rd., Shoufeng, Hualien, 97401, Taiwan, Republic of China

    Chien-Nan Chen

  2. Department of Business Administration, National Taiwan University, 85, Roosevelt Road Sec. 4, Taipei, 106, Taiwan

    Wenyi Chu

Authors
  1. Chien-Nan Chen
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Wenyi Chu
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Chien-Nan Chen.

Additional information

The authors would like to gratefully acknowledge the helpful comments of the editor and two anonymous referees.

Rights and permissions

Reprints and permissions

About this article

Cite this article

Chen, CN., Chu, W. Diversification, resource concentration, and business group performance: Evidence from Taiwan. Asia Pac J Manag 29, 1045–1061 (2012). https://doi.org/10.1007/s10490-010-9245-1

Download citation

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s10490-010-9245-1

Keywords

Search

Navigation