• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

"A striking feature of most emerging economies, is the prominent role played by business groups" (Khanna and Rivkin, 2001,) Assess the importance of business groups in the economic development of emerging markets.

Extracts from this document...


"A striking feature of most emerging economies, is the prominent role played by business groups" (Khanna and Rivkin, 2001,) Assess the importance of business groups in the economic development of emerging markets. The term 'emerging markets' was defined in 1981 by Antoine W. Van Agtamael of the International Finance Corporation (IFC) of the world bank as an 'economy with low-to-middle per capita income.'1 Such countries constitute approximately 80% of the global population, representing about 20% of the worlds economies. In order to answer, I have decided to use examples from the following emerging markets. Firstly, Japan whose Corporate groups of networks and alliances is more commonly known as the Zaibatsu. Secondly, South Korea, the Chaebol and finally Argentina where there are a variety of large interrelated family connections. At the beginning of the 20th century, the US, UK and Germany were the worlds leading Industrial economies. Developing new technologies and improving methods of communication meant that the 'gap' between these three countries and the rest of the world grew larger. In addition to this, barriers to entry, particularly in terms of price and quality of their products, they soon became the source for continuous learning to enhance the productivity of the existing technologies and to commercialise closely related ones. After WWII, catch up began for predominantly Argentina, Japan and South Korea, often described as the 'latecomers of the North Atlantic Region.' ...read more.


The two groups, The Keiretsu from Japan, and the Chaebol in South Korea share similarities in the historical and developmental experiences of their past. Their business firms also share common features of Confucian-based familism. Hamilton and Feenstra (1998:128-9) concur that 'In all these background variables, economic, social and cultural, Taiwan and South Korea are as nearly the same as could be imagined between any two countries in the world today. Yet the economics of these two countries are organised in radically different ways.' Business groups such as this one are prevalent especially in emerging markets, as there are few entrepreneurs with the ability and will to industrialise, where there as there are may types of Industries that could be developed. It is therefore, almost inevitable, that a single big entrepreneur will come to manage a variety of businesses, in the pocess of forming the Zaibatsu or Chaebol. Khanna and Palepu (1999) wrote that, " It is important to recognise that emerging economies unlike those of developed nations, lack many of the essential supporting institutions we tend to take for granted. Court systems, contract law, stock markets, accounting standards, and others that facilitate entrepreneurs and growth are often weak, archaic or entirely missing." Khanna later suggests that by providing substitutes for these kinds of gaps in infrastructure, business groups can help foster entrepreneurship in a variety of different ways. ...read more.


More generally, the scale and scope of groups could allow business groups to internally replicate the functions provided by stand alone intermediary institutions in advanced economies. Firms affiliated with business groups, therefore, can benefit from access to these internal institutions to mitigate external markets failures. Group structures also have the capacity to reduce the costs of diversification. While groups themselves are often highly diversified individual firms in each group are typically focused. Therefore the most important role of the groups internal capital market is to launch new ventures, in which both the family and the other group affiliates might acquire ownership stakes. Even though group affiliation can be potentially beneficial, there are also several reasons why the costs of group affiliation may exceed the potential benefits. Khanna and Palepu, in their journal entitled, 'is group affiliation profitable in emerging markets,' explore this view concluding that membership in diversified groups can also be subject to conflicts of interest between controlling family shareholders and minority shareholders. Their research based around India's emerging market shows that family ownership may result in the misallocation of capital by investing cash flow generated by profitable group firms in unprofitable investments, even though this may be in the interest of public shareholders. 1 Global Economic Prospects and the Developing Countries, World Bank, 2002 2 A. Chandler, F. Amatai & T. Hikino (1997) 'Big business and the Wealth of Nations.' 3 Coase R.H (1998) The Firm, the Market , and the Law ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our University Degree Accounting section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related University Degree Accounting essays

  1. Working Capital Management

    Although operating net profit ratio has decreased in 2007-08 as compared with previous year the ratio is increasing as compared with 2004-05. 10. The return on capital employed is more than 23 % till date and was lowest in 2007-08 i.e. 23.21 %. It was highest in 2005-06 i.e.

  2. Businesses operating in developing countries and emerging economies face a number of political, economic ...

    Governments may start wanting to have control over what the businesses do without necessarily investing in them: As governments expand their commercial activities, they also tend to expand regulatory influence over foreign enterprises.4 In some cases, government intervention can be subtle, but in others it can be extreme.

  1. Management Accounting_Ananlysis_project - Aviation Industry in India

    * 55 classic and next generation Boeing 737-700/800/900 aircraft * 10 Boeing 777-300 ER aircraft* * Includes aircraft that have been wet leased / dry leased to other airlines. Airline Network Jet Airways flies to 71 destinations span the length and breadth of India and International offering you a better choice in the skies.

  2. Two-page report if an aggressive takeover should occur on Fortescue Metals Group Ltd (FMG)

    Transport and communication 25,929 6.6 Finance and insurance 53,143 13.5 Property and business services 33,830 8.6 Other services industries7 6,105 1.6 Unallocated8 12,500 3.2 Total 392,862 100 Source: ABS Cat. No. 5352.0, December 2008. In 2008, total FDI inflows to Australia reached A$26.6 billion (US$22.2 billion), accounting for 2.4% of total GDP in the year.

  1. Value Chains Versus Supply Chains

    Er is toen een analyse gemaakt van sterktes en zwaktes van ´┐Żn kansen en bedreigingen voor de Amsterdamse economie. Aan de hand van deskresearch en interviews met een aantal externe stakeholders is nagegaan welke (structurele) veranderingen zich in de Amsterdamse economische situatie hebben voorgedaan en hoe deze kunnen worden verklaard.

  2. Issues in International Accounting

    A core precept of the plan is to help create world-class Malaysian enterprises with a competitive international edge in price, quality, delivery and costs. In the telecommunications industry, this is a clear call for an evolution to next generation IP-based converged networks that have demonstrated their ability to increase employee

  1. Frozen - business plan for an ice-cream shop.

    Besides, the equipment also has limited lifespan. They are depreciated as follow: Table 3.4: Depreciation rate Equipment Useful life Monthly depreciation expense Cream maker machine 27,500,000 5 years 458333,3333 Fan 900,000 3 years 25000 Plastic chair 720,000 5 years 12000 Cabinet with bar 4,500,000 10 years 37500 Total 532833.3333 (Conducted by authors)

  2. Capital budgeting: advantages and limitations

    The long-term commitment of funds leads to financial risk. Hence, careful and effective planning is a must to reduce the financial risk as much as possible. Capital budgeting decisions are difficult to make because it involves the assessment of future events, which are difficult to ascertain.

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work