Identifying and Explaining the Influencing Factors in Formation and Development of Heterogeneous Mulbusiness Corporations (Conglomerate)

Document Type : Research Paper

Authors

1 PhD student in Business managment, Faculty of Management and Accounting, Shahid Beheshti University, Tehran,iran,

2 Associate Professor, Faculty of Management and Accounting, Shahid Beheshti University, Tehran, iran

3 Assistant Professor, Faculty of Management and Accounting, Shahid Beheshti University, Tehran, iran

Abstract

Extended Abstract
Abstract
The purpose of the present study is to provide a theoretical framework for the formation influencing factors in heterogeneous multibusiness corporations and the role of each of these factors in different stages of corporate development.
The methodology of the present study is a systematic review, which, according to Cooper, consists of seven stages, namely problem formulation, data gathering of studies, qualitative evaluation of studies, analysis and integration, interpretation of documentation, and presentation of results. Accordingly, 39 articles on unrelated diversification strategies and conglomerates were published between 1965 and 2018 on a scientific basis, extracted and analyzed after the filtering process using manual coding. based on the results of selective articles, 28 indices were divided into three contextual, structural and contentual factors. Four indices were identified for content factors, 15 for structural factors and 9 for contextual factors. Among the contextual indicators, the economies of states, government and institutional factors, among the structural factors indices of risk reduction, finaincial synergy, and central business position, and among the managerial and shareholder behavioral factors were the most frequent ones. In the second stage, the role of each of the factors in the development stages of conglomerate corporate was investigated, which in the early stage of contextual factors, and growth stage, structural factors and in the maturity stage, contentual factors had the most influence.
Introduction
Diversification strategy is one of the ways to enter into heterogeneous businesses. There has been much study and views about the formation of corporate with related businesses, but any comprehensive model for the formation of unrelated multi-business not been put up yet. THIS study attempts to bridge this gap. Given the complex and unstable environment in most developing countries,especially Iran, many companies are approaching toward this type of developement and most of them often fail. On the other hand, the role of these factors in different stages of the development of corporate is not same, so this study seeks to answer this question.
 case study
The statistical population of the study: All articles on unrelated diversity strategies and conglomerates were published in the scientific database between 1965 and 2018.
Theoretical framework
Since most research on related and unrelated diversification is related to their performance, value, risk, etc., research has not comprehensively examined the cause of the formation of multifaceted and unrelated corporate. According to the theoretical literature, the reasons for the formation of multi-business corporations can be explained in two dimensions: The first is the economics of countries and base developing countries and the second is based on their purpose of diversification, which purpose is Growth.
Methodology
The methodology of the present study is a systematic review, which, according to Cooper, consists of seven stages, namely problem formulation, data gathering of studies, qualitative evaluation of studies, analysis and integration, interpretation of documentation, and presentation of results. Accordingly, 39 articles on unrelated diversification strategies and conglomerates were published between 1965 and 2018 on a scientific basis, extracted and analyzed after the filtering process using manual coding.
Discussion and Results
Based on the results of selected articles, 30 indices were divided into three contextual, structural and contentual factors. These indicators include. Intense competition in domestic markets, weak institutional environment, geographic location, legal constraints, support industries, government support, tax incentives, information asymmetry, external alliances, all of which were underlying factors. Owners' philosophy, managerial motivations, strong employee ethics and organizational culture related to behavioral factors and ultimately strong R&D, surplus funds, financial synergy, risk reduction, current business performance, managerial synergy, economies of scale, strategy Current businesses, timing of entry into unrelated businesses, industry-leading advantages, maturity of pivotal businesses, need for high-tech, territory economics, managerial stability, and high transaction costs. In the second stage, the role of each of the factors in the development stages of conglomerate corporate was investigated, which in the early stage of contextual factors, and growth stage, structural factors and in the maturity stage, behavioral factors had the most influence.
Conclusion
Based on the results of the research, one can find the main cause of the formation of multifaceted and unrelated companies in three behavioral, contextual and structural factors. Among these factors, the role of the underlying factors for the formation of multi-business and unrelated corporations is more important than the others, depending on the conditions of the institutional environment of the countries and the stage of development of their economies. On the other hand, when companies are formed, they later show the role of more structural factors, covered by indicators such as financial and managerial synergies, scale and territory efficiency, and finally, the maturity stage for managers and shareholders to enter the internal market. And related and unrelated externalities that are more important in the form of behavioral factors than others.
 

Keywords

References

1-Adler, P. & Kwon, S. (2002). Social capital: Prospects for a new
concept. Academy of Management Review, 27: 17–40.
2-Akçayır, M. & Akçayır, G (2017). Advantages and challenges associated with augmented reality for education: A systematic review of the literature.
Educational Research Review, 20, 1-11.
3-Amit, R. & Livnat, J. (1988). A concept of conglomerate diversification. Journal of Management, 14(4).
4-Amsden, A. H. & Hikino, T. (1994). Project execution capability, organizational know-how and conglomerate corporate growth in late industrialization. Industrial and Corporate Change, 3(1), 111–147.
5-Ansoff, I. (1957). Strategy of diversification‟, Harvard Business Review, Sept.Oct.
6-Andrade, L, Barra, J. M. & Elstrodt, H. (2001). All in the Familia. McKinsey Quarterly, 4.
7-Barney, J. (2006). Is there a diversification discount, diversification, payout policy and firm value, Management JournaL,47- 62.
8-Babaei Zakliki, M. (2003). New Approaches to Holding Corporate Management, Management and Development. No. 16(in persian).
9-Biggart, N. (1990). Institutionalized patrimonialism in Korean business. In C. Calhoun (Ed.), Comparative Social Research, vol. 12: Business Institution, pp. 113–133.
10-Campillo, A. (2014). The benefits of related and unrelated diversification strategies in the Spanish context: What is the difference that executive
leadership style can make? New York University on February 18.
11-Ccclzolari, G & Scarpa.C.(2016). Conglomerate and gulation, Economic Inquiry (ISSN 0095-2583) Vol. 54, No. 3, 1648–1669
12-Chang, S. J. & Hong, J. (2000). Economic performance of group affiliated companies in Korea: intragroup resource sharing and internal business transactions, Journal of Academy Management, 43 (3), 429-448.
13-Chatterjee, S. & Wernerfelt, B. (2001). The link between resources & type of diversification: Theory &evidence, Journal of Strategic Management, 12, 33-48.
14-Cooper, H. (2009). Research Synthesis and Meta- Analysis A Step-by-Step
Approach. Sage Publications, Inc
15-Datta, D. K. & Guthrie, J. P. (2011). Executive succession: Organizational antecedents of CEO characteristics. Journal of Strategic Management, 15, 569–577.
16-Denis, D. Denis, D. & Yost, K. (2012). Global diversification, industrial diversification, and firm value. Journal of Finance, 57 (5), 1951-1979.
17-Dehghan, R; Talebi, K. & Arabiyon, O (2012). Research on Factors Affecting on Organizational Innovation and Entrepreneurship in Medical Universities of Iran. Health Approach, Year, 6 pp..33 -22. (in persian).
18-Dhir, S & Dhir, D. (2015). Diversifcation: Literature Review and Issues, Change 24: 569–588.
19-Dhir, S. & Mital, A. (2012). Decision‐making for mergers and acquisitions: the role of agency issues and behavioral biases Strategic Change, 21(1‐2), 59–69.
20-Drozdow, N. & Carroll, V. P. (1999). Tools for strategy development in family firms. Sloan Management Review, C.
21-Døving, E & Gooderham P. (2008). Dynamic capabilities as antecedents of the scope of related diversifcation: Tecase of small frm accountancy practices. Journal of Strategic Management, 29(8): 841–857.
22-Doukas, J. & Kan, O. (2006). Does diversification destroy firm value? Journal of Finance, 21(4), 59–71.
23-Erdorf, S. Hartmann-Wendels, T. Heinrichs, N. & Matz, M. (2013). Corporate diversification and company value: A survey of recent literature. Journal of Financial Markets and Portfolio Management, 27(2).
24-Fang Y, Wade M, Delios A, & Beamish PW. (2007). International
diversification, subsidiary performance, and the mobility of
knowledge resources. Journal of Strategic Management, 28:
1053–1064.
25-Fauver, L. Houston, J. & Naranjo, A. (2003). Capital market development, international integration, legal systems, and the value of corporate diversification: A cross-country analysis’ Journal of Financial and Quantitative Analysis, Vol. 38 (1), pp. 135-157.
26-Guillen, M. F. (2001). The limits of convergence: Globalization and organizational change in Argentina, South Korea, and Spain. Princeton, NJ: Princeton University Press.
27-Hitt, M.A, Ireland R.D. & Hoskisson R.E. (2009). Strategic management: competitiveness and globalization: concepts & cases. Cincinnati: South-Western, Cengage Learning.
28-Hoskisson, R.E. Hitt, M.A. Johnson, R.A. & Moesel, D.D. (2010). Construct validity of an objective (entropy) categorical measure of diversification strategy. Journal of Strategic Management, 14, pp. 215–235.
29-Jeon, Y & Kim, Y (2004): „Conglomerates and Economics Calculation, The quarterly journal of austraine, p 41-54.
30-Johnson, G. Scholes, K. & Whittingtton. (2006). Exploring corporate strategy (7th ed). New York, NY: Prentince Hall...
31-Jones, G. & Rose, M. B. (1993). Family capitalism. Business History, 35(4), 1–16.
32-Jones, G. R. & Hill, C. W. L. (2008). Transaction cost analysis of strategy-structure choice. Journal of Strategic Management, 9 (2), 159-172.
33-Kang, J. (2013). The relationship between corporate diversification and corporate social performance. Journal of Strategic Management, 34(1), 94–109.
34-Khanna, T. & Palepu, K. (1997). Why focused strategies may be wrong for emerging markets. Harvard Business Review, 75(4), 41–51.
35-Khanna, T. & Palepu, K. (2000). Is group affiliation profitable in emerging markets: an analysis of Indian diversified business groups. Journal of Finance, 55, pp. 867–891.
36-Kim, H. Hoskisson, R. & Wan, W. (2004). Power dependence, diversification strategy, and Performance, journal of Strategic Management, 25, 613-636.
37-Kim, B. G. & Chen, K. C. (2010). The Relationships Among Corporate Governance Structure, journal of business strategic, pp 210-223.
38-Kock, C. J. & Guillen, M. F. (2001). Strategy and structure in developing countries: Business groups as an evolutionary response to opportunities for unrelated diversification. Industrial and Corporate Change, 10(1), 77–113.
39-Kurtuvic, S; Siljkovic, B & Boban, D. (2013). Conglomerate companies as emergant markets phenomenon, analysis of the Oradea university, Fascicle of Management and Technological Engineering.
40-Le, H. (2018). Literature Review on Diversification Strategy,
Enterprise Core Competence and Enterprise Performance, American Journal
of Industrial and Business Management, 9,91-108.
41-Lim E, Das S & Das, A. (2009). Diversifcation strategy, capital structure, and the Asian fnancial crisis (1997–1998): Evidence from
Singapore frms, Journal of Strategic Management 30: 577–594.
42-Lien, Y.C. & Li, S. (2013). Does diversification add company value in emerging economies? Effect of corporate governance. Journal of Business Research, 66(12), 2425.
43-Lu JW & Beamish, P. (2004). International diversifcation and frm performance: Te S‐curve hypothesis, Journal of Academy Management 47: 598–609.
44-Lyon, D.W. and Ferrier, W.J. (2008). Enhancing Performance with Product-Market Innovation, Journal of Management Issue, pp 452^-69.
45-Martin, J.D. & Sayrak, A (2003). Corporate diversification and shareholder value: a survey of recent literature‟, Journal of Corporate Finance, 9(1): 37-57.
46-Miller, D. J. (2006), Technological Diversity, Related Diversification, and Firm Performance. Journal of Strategic Management 27(7):601-619.
47-Nachum, L. (1999). Diversification strategies of developing country firms. Journal of International Management, 5, 115–140.
48-Nejadmalayeri A, Singh M, Mathur, I. (2016). Product market advertising and corporate bonds. J Corp Financ, Is there an optimally diversified conglomerate? Gleaning answers from capital markets.
49-Nyaingiri, S & Ogollah, O. (2015). Influence of Unrelated Diversification Strategy Components on Corporate Performance: Case of Sameer Group in Kenya, Journal of Business and Management, Volume 17, Issue 4. PP 78-83
50-Palich, LE, Cardinal, LB & Miller, C. (2000). Curvilinearity in the diversifcation–performance linkage: An examination of over three decades of research. Journal of Strategic Management, 21: 155–174.
51-Peng, M; Lee, S & Wang, D. (2005). what determines the scope of the firm over time? A foucs on institutional relatednes, Academy of Management Review 2005, Vol. 30, No. 3, 622–633.
52-Porter, M. E. (1988). Competitive advantage: Creating and sustaining superior performance. New York, NY: Free Press.
53-Purkayastha, S Manolova, M & Edelman, L. (2012). Diversification and performance in Developed and Emerging Market Contexts: A Review of the Literature, International Journal of Management Reviews, Vol. 14, 18–38.
54-Ramanujam, V & Varadarajan, P. (1989), ‘‘Research on corporate diversification: a synthesis’’, Journal of Strategic Management, Vol. 10, pp. 523-51.
55-Rhodes, S.A. (1973). The effect of diversification on industry profit performance in 241 manufacturing industries: 1963. Review of Economics and Statistics, 55, pp. 146–155.
56-Rumelt, R. P. (1974). Strategy, structure and economic performance. Cambridge, MA: Harvard University Press.
57-Samphantharak K (2007). The Choice of Organization Structure: Business Group versus Conglomerate.
58-Salma, U & Hussain, M. (2018). A Comparative Study on Corporate Diversification and Firm Performance across South Asian Countries, J Account Mark 7.
59-Samphantharak, K. (2007). The Choice of Organization Structure: Business Group versus Conglomerate.
60-Teece, D. J. R. Rumelt, G. Dosi, W. & Winter, S. (2004). Understanding Corporate Coherence: Theory and Evidence, Journal of Economic Behavior and Organization, 23,1-30.
61-Tihany L, Ellstrand AE, Daily, CM & Dalton, DR. (2000). Composition of the top management team and frm international diversifcation. Journal of Management 26: 1157–1177
62-Wan, W. P. & Hoskisson R. E. (2003). Home country environments, corporate diversification strategies, and firm performance, Journal of Academy of Management 46, pp.27–45.
63-Wang, H & Barney JB. (2006). Employee incentives to make frm specifc investments: Implications for resource‐based theories of corporate diversifcation. Academy of Management Review 31: 466–476.
64-Wiersema M & Bowen H. (2008). Corporate diversifcation: Te impact of foreign competition, industry globalization, and product diversifcation. Journal of Strategic Management 29:115–132.
65-Wernerfelt, B. & Montgomery, C.A. (2006). What is an attractive industry? Management Science, 32, 1223–1229.
66-Whittington, R. (2006). Completing the practice turn in strategy research. Organization Studies, 27(5), 613–634.
Public Management Researches
Volume 13, Issue 48 - Serial Number 48
September 2020
Pages 293-318

Files

Share

How to cite

Statistics