Skip to main content

Creating relational rents: The effect of business groups on affiliated firms’ performance in Indonesia

Asia Pacific Journal of Management volume 23, pages 537–557 (2006)Cite this article

Abstract

This research attempts to extend the discussion of business groups in emerging economies by treating business groups as a form of interorganizational network that generates relational rents among affiliated firms by creating technological and managerial capabilities. Based on the relational view, this research investigates whether value created by business groups depends upon sharing, combining, and exchanging unique and specific resources or assets among affiliated firms. Results show that technological capabilities contribute to create relational rents in terms of affiliated firms’ investment in R&D and human capital. Managerial capabilities also contributed to generating relational rents through investment in managerial knowledge acquisition for affiliated firms without R&D units and in training for affiliated firms with R&D units. However, learning by exporting and learning from imported input do not yield relational rents within business groups. Overall, these findings reveal that business groups as interorganizational networks are contingent on their internal, unique, and specific capabilities, as social capital theory argues.

This is a preview of subscription content, access via your institution.

Access options

Buy single article

Instant access to the full article PDF.

USD 39.95

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

References

  • Ahmadjian, C. L., & Lincoln, J. R. 2001. Keiretsu, governance, and learning: Case studies in change from the Japanese automotive industry. Organization Science, 12: 683–701.

    Article  Google Scholar 

  • Astra International. (http://www.astra.co.id/page.asp?c=2.40000).

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

    Article  Google Scholar 

  • Bhaduri, S., & Ray, A. S. 2004. Exporting through technological capability: Econometric evidence from India’s pharmaceutical and electrical/electronics firms. Oxford Development Studies, 32: 87–100.

    Article  Google Scholar 

  • Bell, M., & Pavitt, K. 1993. Technological accumulation and industrial growth: Contrast between developed and developing countries. Industrial and Corporate Change, 2: 157–210.

    Article  Google Scholar 

  • Blalock, G., & Gertler, P. J. 2004. Learning from exporting revisited in a less developed setting. Journal of Development Economics, 75: 397–416.

    Article  Google Scholar 

  • Blalock, G., & Veloso, F. 2003. Trade, technology transfer and productivity growth: The neglected role of imports. Working paper, Cornell University. http://www.aem.cornell.edu/faculty_sites/gb78/hfdi.pdf.

  • Capanelli, G. 1997. Industry-wide relocation and technology transfer by Japanese electronics firms: A study on buyer–supplier relations in Malaysia. Unpublished dissertation, Graduate School of Economics, Hitotsubashi University, Tokyo.

  • Caves, R. & Uekusa, M. 1976. Industrial organization in Japan. Washington, DC: Brookings Institution.

    Google Scholar 

  • Chang, S. J., & Hong, J. 2000. Economic performance of the Korean business groups: Intra-group resource sharing and internal business transaction. Academy of Management Journal, 43: 429–448.

    Article  Google Scholar 

  • Chua, C. 2005. The conglomerates in crisis: Indonesia, 1997–1998. Paper presented at Asia Pacific Journal of Management Special Issue Conference, Singapore.

  • Clerides, S. K., Lach, S., & Tybout, J. R. 1998. Is learning by exporting important? Micro-dynamic evidence from Colombia, Mexico, and Morocco. Quarterly Journal of Economics, 113: 903–948.

    Article  Google Scholar 

  • Cohen, W. H., & Levinthal, D. A. 1990. Absorptive capacity: A new perspective on learning and innovation. Administrative Science Quarterly, 35: 128–152.

    Article  Google Scholar 

  • Dieleman, M., & Sachs, W. 2005. The Salim Group: Oscillating between a relationship-based and a market-based model. Paper presented at Asia Pacific Journal of Management Special Issue Conference, Singapore.

  • Dyer, J. H., & Singh, H. 1998. The relational view: Cooperative strategy and sources of interorganizational competitive advantage. Academy of Management Review, 23: 660–679.

    Article  Google Scholar 

  • Ernst, D., Mytelka, L., & Ganiatsos, T. (Eds). 1998. Technological capabilities and export success in Asia. London: Routledge.

  • Field, A. 2000. Discovering statistics: Using SPSS for Windows. London: Sage.

    Google Scholar 

  • Ghoshal, S., & Bartlett, C. 1990. The multinational corporation as an interorganizational network. Academy of Management Review, 15(4): 603–625.

    Article  Google Scholar 

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

    Article  Google Scholar 

  • Gulati, R., Nohria, N., & Zaheer, A. 2000. Strategic networks. Strategic Management Journal, 21: 203–215.

    Article  Google Scholar 

  • Hatch, N. W., & Dyer, J. H. 2004. Human capital and learning as a source of sustainable competitive advantage. Strategic Management Journal, 25: 1155–1178.

    Article  Google Scholar 

  • Hitt, M. A., Bierman, K., Shimizu, K., & Kochhar, R. 2001. Direct and moderating effects of human capital on strategy and performance in professional firms: A resource-based perspective. Academy of Management Journal, 44: 13–28.

    Article  Google Scholar 

  • Hobday, M. 1995. Innovation in East Asia: The challenge to Japan. Aldershot: Elgar.

    Google Scholar 

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

    Article  Google Scholar 

  • Khanna, T., & Palepu, K. 2000. The future of business groups in emerging markets: Long-run evidence from Chile. Academy of Management Journal, 43: 268–285.

    Article  Google Scholar 

  • Khanna, T., & Rivkin, J. 2001. Estimating the performance of business groups in emerging markets. Strategic Management Journal, 22: 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: 25–48.

    Article  Google Scholar 

  • Kim, H., Hoskisson, R. E., & Wan, W. P. 2004. Power dependence, diversification strategy, and performance in keiretsu member firms. Strategic Management Journal, 25: 613–636.

    Article  Google Scholar 

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

    Article  Google Scholar 

  • Lall, S. 1992. Technological capabilities and industrialization. World Development, 20: 165–186.

    Article  Google Scholar 

  • Lee, J. R., & Chen, J. S. 2003. Internationalization, local adaptation, and subsidiary’s entrepreneurship: An exploratory study on Taiwanese manufacturing firms in Indonesia and Malaysia. Asia Pacific Journal of Management, 20: 50–72.

    Article  Google Scholar 

  • Lee, C., Lee, K., & Pennings, J.M. 2001. Internal capabilities, external networks, and performance: A study on technology-based ventures. Strategic Management Journal, 22: 615–640.

    Article  Google Scholar 

  • Madanmohan, T. R., Kumar, U., & Kumar, V. 2004. Import-led technological capability: A comparative analysis of Indian and Indonesian manufacturing firms. Technovation, 24: 29–39.

    Article  Google Scholar 

  • Mahmood, I. P., & Mitchell, W. 2004. Two faces: Effects of business group on innovation in emerging economies. Management Science, 50: 1348–1365.

    Article  Google Scholar 

  • Markides, C. C., & Williamson, P. 1996. Corporate diversification and organizational structure: A resource-based view. Academy of Management Journal, 39(2): 340–367.

    Article  Google Scholar 

  • Mathews, J. A. 2002. Competitive advantages of the latecomer firm: A resource-based account of industrial catch-up strategies. Asia Pacific Journal of Management, 19: 467–488.

    Article  Google Scholar 

  • Minbaeva, D., Pedersen, T., Bjorkman, I., Fey, C. F., & Park, H. J. 2003. MNC knowledge transfer, subsidiary absorptive capacity, and HRM. Journal of International Business Studies, 34: 586–599.

    Article  Google Scholar 

  • Mowery, D. C., Oxley, J. E., & Silverman, B. S. 1996. Strategic alliances and interfirm knowledge transfer. Strategic Management Journal, 17: 77–91.

    Google Scholar 

  • Mursitama, T. N. 2005. An empirical study on technological capability of Indonesian firms: Lessons from Japan and NIEs. NIPPON, Center for Japanese Studies University of Indonesia, Publication Series, 5: 23–51.

    Google Scholar 

  • Nahapiet, J., & Ghoshal, S. 1998. Social capital, intellectual capital and the organizational advantage. Academy of Management Review, 23: 242–266.

    Article  Google Scholar 

  • Nelson, R. R. 1991. Why do firms differ, and how does it matter? Strategic Management Journal, 12: 61–74.

    Article  Google Scholar 

  • Nieto, M., & Quevedo, P. 2005. Absorptive capacity, technology opportunity, knowledge spillover, and innovative effort. Technovation, 25: 1141–1157.

    Article  Google Scholar 

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

    Google Scholar 

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

    Article  Google Scholar 

  • Rasiah, R., & Tamale, H. 2004. Productivity, exports, skills and technological capabilities: A study of foreign and local manufacturing firms in Uganda. Discussion paper series INTECH, 2004-1, United Nations University, The Netherlands.

  • Rosser, A. 2002. The politics of economic liberalization in Indonesia: State, market, and power. Surrey: Curzon.

    Google Scholar 

  • Salomon, R. M., & Shaver, J. M. 2005. Learning by exporting: New insights from examining firm innovation. Journal of Economics & Management Strategy, 14: 431–460.

    Article  Google Scholar 

  • Sato, Y. 1994. The development of business groups in Indonesia: 1967–1989. In Shiraishi, T. (Ed.), Approaching Suharto’s Indonesia from the margins: 101–153, Ithaca: Cornell University.

    Google Scholar 

  • Sato, Y. 1996. The Astra Group: A pioneer of management modernization in Indonesia. The Developing Economies, 34: 247–280.

    Article  Google Scholar 

  • Sato, Y. 2003a. Post-crisis economic reform in Indonesia: Policy for intervening in ownership in historical perspective. IDE Research Paper, 4: 1–52.

    Google Scholar 

  • Sato, Y. 2003b. Corporate governance in Indonesia: A study on governance of business groups. In Y. Shimomura (Ed.) The role of governance in Asia: 88–136, Singapore: ISEAS.

  • Sato, Y. 2004. Corporate ownership and management in Indonesia: Does it change? In Basri, M. C., & Van de Eng, P (Eds.) Business in Indonesia: New challenges, old problems: 158–177, Singapore: ISEAS.

  • Szulanski, G. 1996. Exploring internal stickiness: Impediments to the transfer of best practice within the firm. Strategic Management Journal, 17: 27–43.

    Google Scholar 

  • Takii, S. 2004. Productivity differentials between local and foreign plants in Indonesian manufacturing, 1995. World Development, 11: 1957–1969.

    Article  Google Scholar 

  • Teece, D. J. 1986. Profiting from technological innovation: Implications for integration, collaboration, licensing and public policy. Research Policy, 15: 285–305.

    Article  Google Scholar 

  • Thee, K. W. 2001. Channels of international technology transfer in Indonesia: A brief survey. Working paper, 2001-32, ICSEAD, Kitakyushu, Japan.

  • Thee, K. W. 2006. Technology and Indonesia’s industrial competitiveness. Discussion paper No. 43, ADB Institute, Tokyo, Japan.

  • Tsai, W. 2000. Social capital, strategic relatedness and the formation of intraorganizational linkages. Strategic Management Journal, 21: 925–939.

    Article  Google Scholar 

  • Tsai, W. 2002. Social structure of “coopetition” within a multiunit organization: Coordination, competition, and intraorganizational knowledge sharing. Organizational Science, 13(2): 179–190.

    Article  Google Scholar 

  • Sjoholm, F. 1999. Exports, imports and productivity: Results from Indonesian establishment data. World Development, 27: 705–715.

    Article  Google Scholar 

  • Warta Ekonomi. 2005. Perusahaan Idaman 2005 (Ideal Companies 2005). December, 29. http://www.wartaekonomi.com).

  • Wright, M., Filatotchev, I., Hoskisson, R. E., & Peng, M. W. 2005. Guest editors’ introduction strategy research in emerging economies: Challenging the conventional wisdom. Journal of Management Studies, 42: 1–33.

    Article  Google Scholar 

  • Yang, C. H. 2003. Exporting and productivity: A firm-level analysis of the Taiwan electronics industry. The Developing Economies, 41: 340–361.

    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. Journal of Management Studies, 42: 183–206.

    Article  Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Gakushuin University, Graduate School of Management, 1-5-1 Mejiro, Toshima-ku, Tokyo, 171-8588, Japan

    Tirta Nugraha Mursitama

Authors
  1. Tirta Nugraha Mursitama
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Tirta Nugraha Mursitama.

Additional information

I gratefully acknowledge constructive comments from Shigeru Asaba, Michio Nitta, Keisuke Nakamura, Junji Nakagawa, Hiroyoshi Kano, Ishtiaq Mahmood, Andrew Delios, Mike Peng, Michael Carney, Alvaro Cuervo-Cazurra, Sea Jin Chang, Yuri Sato, Thee Kian Wie and two anonymous referees for helpful comments. I also benefited from the discussions with participants at Asia Pacific Journal of Management Special Issue Conference 2005. I gratefully acknowledge financial support for conference attendance provided by the Asia Academy of Management/APJM and National University of Singapore as well as from Center for International Exchange, Gakushuin University, Tokyo. All errors remain mine.

Rights and permissions

Reprints and Permissions

About this article

Cite this article

Mursitama, T.N. Creating relational rents: The effect of business groups on affiliated firms’ performance in Indonesia. Asia Pacific J Manage 23, 537–557 (2006). https://doi.org/10.1007/s10490-006-9014-3

Download citation

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s10490-006-9014-3

Keywords

  • Business groups
  • Relational rents
  • Capabilities
  • Indonesian firms