what are the role of business groups?
Answers
A defining characteristic of developing countries is the inadequacy of basic services normally required to support organized economic activity. One way in which the private sector acts to facilitate development is through investments orchestrated by agglomerations of firms called business groups. Such groups dominate the landscape of virtually all developing countries. Our study of plant location decisions in India shows that group-affiliates are more likely to (profitably) locate in less-developed states than unaffiliated firms; the magnitude of this “group effect” is large and significant. Furthermore, this result is stronger for more recent location decisions that are less likely to have been driven by political economy considerations. We suggest that this is because the scale and scope of groups, and the de facto property rights enforcement within groups in environments where legal enforcement is lacking, permit them to overcome some of the difficulties that impair production in underdeveloped regions.
Explanation:
The importance of business groups
I was asked recently about the role of business groups in today's increasingly globalised business world, where national borders and the national origin of companies may be considered less significant. It's a good question. In fact, with globalising markets and increasing international trade (once recovery really gets underway) then arguably national business groups are even more important and relevant.
As more countries and companies look to expand their economic interests and search for trading and business opportunities, resources and skills, and seek new export markets and overseas collaborations, the competition between international rivals – and collaboration with neighbours – is becoming more intense. And every country does business in its own way, aligned with its own unique culture.
This is where the business group (BG) comes into its own – representing the national business community, creating and providing information, knowledge and networks for companies and individuals from a shared culture, which helps build collective confidence and provides support that translates relationships into commercial success. Of course, some larger companies are 'international economies' in their own right and transcend this need to some degree – but even they are dependent on their ability to operate effectively in other cultures, on a local level. Think globally and act locally is the mantra.
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