The Diversified Business Group as an Innovative Organizational Model for Large State-Enterprise Reform in China and Vietnam

Berhanu Abegaz ()
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Berhanu Abegaz: Department of Economics, College of William and Mary

No 13, Working Papers from Department of Economics, College of William and Mary

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 organizational 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 organization. DBGs can facilitate government monitoring, exploitation of scale economies for scarce managerial talent, better risk management, and realization 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 privatization, and crafting WTO-compatible industrial and technology policies.

Keywords: Diversified business group; Organizational innovation; State enterprises; China; Vietnam. (search for similar items in EconPapers)
JEL-codes: G3 L2 L3 O3 P5 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2005-01-07
New Economics Papers: this item is included in nep-bec, nep-fin, nep-sea and nep-tra
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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