How do business groups’ small world networks effect diversification, innovation, and internationalization?

Abstract

Small world networks which demonstrate better group cohesiveness have attracted much theoretical attention in enhancing performance and creativity in strategic management. Yet, empirical studies of the benefits that can accrue to business groups' strategic or economic outcomes remain scarce in the business group literature. Conceptualizing the business group as an embedded group network, we investigate the previously untested role of a small world group structure on relationships with group (industrial) diversification, core firm innovation and its internationalization. We find all these have positive and significant impacts. Group diversification is also found to mediate the relationship between a small world group structure and a group's degree of internationalization. However, a small world group structure does not directly relate to a group's degree of internationalization. Drawing on embeddedness and social network perspectives, we find general support for the hypotheses that a small world group structure facilitates strategic and economic outcomes for groups and core firms by virtue of efficiencies in resources exchange in a way that extends the literature on business groups.

Business group affiliation and foreign subsidiary performance

“…First, we find a positive relationship between BG affiliation and foreign subsidiary performance which shows that BG affiliation benefits can be transferred across international boundaries to second‐level affiliates, that is, to foreign subsidiaries of BG members. This finding complements those of previous studies which have found differences in the internationalization process and performance between BG affiliated and unaffiliated MNEs (Chen & Jaw, ; Elango & Pattnaik, ; Garg & Delios, ; Kim et al, ). To the best of our knowledge, ours is the first study of its kind to establish a direct connection between BG affiliation and foreign subsidiary financial performance.…”

“…These kinds of market-based advantages can augment the competitiveness of affiliated firms vis-àvis their unaffiliated rivals-and allow them to capture monopolistic or Ricardian rents (Cuervo-Cazurra & Genç, 2011;Peteraf, 1993). The second source of strength stems from political and social connections nurtured over time (Bucheli, Salvaj, & Kim, 2019;Chen & Jaw, 2014;Guillén, 2000;Hu, Cui, & Aulakh, 2019;Mukherjee, Makarius, & Stevens, 2018). BGs may leverage such connections to influence government policy to the benefit of their affiliates (Hu et al, 2019;Mukherjee et al, 2018).…”

“…With BG affiliated firms increasingly expanding into foreign markets (Holmes, Hoskisson, Kim, Wan, & Holcomb, 2018), the question of whether group affiliation benefits extend to foreign subsidiaries has arisen. While some have argued that BG affiliation facilitates foreign market expansion (e.g., Chari, 2013;Chen & Jaw, 2014;Elango & Pattnaik, 2007;Garg & Delios, 2007), there are studies that indicate it does not (e.g., Chittoor, Sarkar, Ray, & Aulakh, 2009;Gaur & Delios, 2015;Pattnaik, Lu, & Gaur, 2018). We need a better understanding of the benefits that foreign subsidiaries of BGs can derive from BG affiliation.…”

Managerial decisions on the nature and scale of corporate activity diversification in the construction sector

“…Many studies focus on the impact of corporate ownership on the processes of diversification (Chung, 2013;Hernández-Trasobares & Galve-Górriz, 2016;Schmid et al, 2015;Sanchez-Bueno & Usero, 2014). Geographical diversification of business companies (Chonghui et al, 2013;Thoumrungroje & Tansuhaj, 2005;Gaur & Delios, 2015;Qian et al, 2013;Yahaya et al, 2009;Mauer et al, 2015), diversification risks (Busse et al, 2014;Yücel & Önal, 2015), the processes of diversification in business networks (Kim et al, 2014;Chen & Jaw, 2014) are areas of continuous interest among researchers.…”

The Role of Relationships in Initiating the Internationalisation Process in B2B Markets

“…This credit may be insufficient in formal circumstances of a dispersed and atomised large network (as in the case of ZB). Smaller group structures tend to better facilitate strategic and economic outcomes for their members (Chen & Jaw, 2014, p. 1019. In the case of P and other high-tech industry born global companies, rapid internationalisation necessitates the exploitation of temporary network nodes and specialised fora (Smith, Ryan, & Evers, 2015, p. 297).…”