The Nature of the Business Group: A Social Network Perspective

Abstract

This article takes as its point of departure the ambiguous and inconsistent way in which the concept of the ‘business group’ and other associated concepts has been used in the literature to describe and label different types of interfirm relationships. To remedy this state of affairs, a preliminary conception of the business group is presented and elaborated upon, in which the business group is conceptualized as comprising three analytically separable elements: network(s) of interrelated firms, the institutionalized logic of reciprocity, and the intersubjective interpretation of actors inside as well as outside the group. Further, a social network perspective on organizations is suggested for the analysis of business groups.

The structural, social, and strategic factors associated with successful business networks

“…The historically prominent role of networks in the construction industry is well documented (Eccles 1981). Nevertheless, recognition of the contribution of networks to business success received little attention from academics and policy-makers (Human and Provan 2000;Sma˚ngs 2006) until the 1990s after Piore and Sabel (1984) introduced the industrial districts of Northern Italy to Western scholars and Womack, Jones, and Roos (1990) documented the role of supply chains to the success of Japanese businesses. Today business networks are a frequent subject of study with some analysts referring to them as the signature organizational form of the global economy (Parkhe, Wasserman, and Ralston 2006;Sydow and Windeler 1998).…”

“…They can take many forms from contractual joint ventures and hierarchical supply chains to less structured, more egalitarian networks such as regional industrial districts, industrial associations, and community business networks. Business networks are prominent features of East Asian capitalism and the economies of Italy, Southern Germany, Sweden, and France (Sma˚ngs 2006;Yiu, Bruton, and Lu 2005). Perrow (2002) contends that small business networks were the defining feature of the American economy before railroad owners secured large, professionally managed corporations as the dominant organizational model.…”

A tale of two levels: the diversification of business groups

“…Even though there may be some degree of integration among the member firms of a business group with the presence of the controlling shareholders (Guillé n, 2010;Morck, 2010), the member firms are legally independent (Khanna & Yafeh, 2007) and typically enjoy a substantial degree of autonomy (Kock & Guillé n, 2001;Små ngs, 2006). While some studies have treated business groups as if they were single multidivisional firms (Chang & Choi, 1988;Chang & Hong, 2000;Leff, 1978), business groups themselves are typically not legal entities.…”

“…Viewing business groups as networks and member firms as nodes, the studies use network-theoretic concepts such as centrality and tie density to explain firm-level or business group-level outcomes (Mahmood et al, 2013;Mahmood et al, 2011;Små ngs, 2006). …”

“…However, what really characterizes the business group is not control per se but rather the non-financial nature of control, which is based on the social solidarity often arising from kinship (Granovetter, 1995;Jones, Hesterly, & Borgatti, 1997;Små ngs, 2006). Including…”