The Nature of the Business Group: Power, Relational Contracts and Scope

We propose a framework for understanding the business group, a hybrid organizational form that occupies the middle ground between firm and market and is a prominent feature of emerging economies. These organizations are characterized by varying levels of diversification and integration. We provide an explanation for the covariation, both positive and negative, in the scope, scale and ‘strength’ of integration of business groups. This notion of integration embodies the strength of ties that connect disparate subsidiary activities to the core of the business group, and is, we believe, novel to the theory of the firm. We also suggest the framework may be useful for understanding internal organizational hierarchy and multiproduct firms.JEL: L22, L14, M13, D23