Diversified Business Groups in the West: History and Theory

This working paper examines the historical origins, evolutionary paths, and long-term resilience of diversified business groups in contemporary developed economies of Western Europe, North America, and Oceania. It aims to come up with a new theoretical understanding of diversified business groups and other comparable models of corporate organizations by broadening the analytical perspectives of earlier approaches on the subject in terms of longitudinal and geographical scope. We suggest that the straightforward association of the general environmental settings of market immaturities and institutional voids with the existence of diversified business groups is rather incomplete in reality. Our findings draw attention to the importance of examining the national differences and historical shifts in larger contexts in understanding the evolution of different varieties of diversified business groups. We further argue that diversified business groups are not simply transitionary organizations that worked well only at the early phase of modern economic growth and would not necessarily become an obstacle for dynamic development as the economies mature. Our research shows that while political institutions and capital markets have become powerful agents to dismantle those groups, a decisive factor to understand the resilience as well as effectiveness of that corporate model remains inside the business group itself. As the business groups flexibly evolve, they can adapt and fit in to remain viable organizational models even in mature markets.