Better together: How multinationals come together with business groups in times of economic and political transitions
Description
Research Summary: This article studies two interrelated questions. First, why did business groups in emerging markets thrive and prevail after pro-market reforms were implemented in their countries? And, second, what type of adaptation strategies can multinational corporations develop in order to be competitive in economies domi- nated by business groups? By conducting an archive- based historical network analysis of business groups in Chile during periods of major economic and political tran- sitions, we maintain that business groups were created in periods of protectionism as a way to navigate economies with strong state participation or inefficient markets. In this process, these groups endogenously created an econ- omy with market imperfections resulting from the domi- nance of these business groups. This means that the transition toward more open markets did not necessarily create more competitive environments and that elites in emerging economies were unwilling to abandon the advantages of having links between their businesses. Mul- tinationals entering this economy adapted by becoming business groups themselves and creating links with other business groups. In sum, strategies devised as means to reduce market imperfections created new imperfections that incentivized the business groups to retain their struc- ture and forced multinationals to become business groups. Managerial Summary: Large diversified conglomerates known as business groups dominate the markets of emerg- ing economies. These groups have survived important changes taking place in their own countries, including the abandonment of an import substitution industrialization model for an open market one or changes from military regimes to democratic ones. This article explores two aspects related to these transitions most emerging
economies have gone through. First, why did some busi- ness groups survive despite the fact that many of them were created and grew during protectionist times? And, second, what strategies have multinational corporations developed when operating in economies dominated by those powerful business groups? We show, first, that some business groups survived the transition by rearranging the type of links they had with each other, and, second, that multinationals competing in economies dominated by those business groups opted for becoming business groups themselves.