J. Ramachandran

K.S. Manikandan

Anirvan Pant

Conglomerates may be regarded as dinosaurs in the developed world, but in emerging markets, diversified business groups continue to thrive. Despite the recent global economic slowdown, their sales rose rapidly during the past decade: by over 23% a year in China and India, and by 11% in South Korea. Business groups accounted for 45, 40, and 20 of the 50 biggest companies (excluding state-owned enterprises) in India, South Korea, and China, respectively, according to a recent McKinsey study.

PT5C9vyXwhcBMvZHm1eYbVyUftOiQA3j602Z5SOp38cJoUI+DtySmLrI1ttgxrlEtUxhsiuCg6BYUM7feHHwUMQJDkcWiVnK2o00S8Lke3MLgFbl8V0g/4TKayFs+Go43taqIUyiH6y23CTeKhrqtw==

Reprint: R1312H 
 Conglomerates once dominated the U.S. business world. But by the 1980s, they&#8217;d been laid low by poor performance, inspiring the belief that focused corporations created more shareholder value. Today conglomerates are largely considered dinosaurs&#8212;except, that is, in emerging markets, where diversified business groups, comprising numerous unrelated enterprises, are flourishing. 
 The authors, who studied Indian business groups for five years, believe that the key to these organizations&#8217; success is their structure. Unlike corporate divisions, a group&#8217;s affiliate companies are legally independent. That allows them to raise capital, set strategies, and create incentives more effectively. Affiliates don&#8217;t report directly to the leaders of the business group but are overseen by the group center, a management layer in the group chairperson&#8217;s office. It coordinates the identity work that unites and inspires affiliates&#8217; employees, and helps affiliates spot and seize opportunities, share resources and talent, and collaborate on strategic activities. Business groups using this model are not only profitable; they also outperform other companies in their markets.

Why Conglomerates Thrive (Outside the U.S.)

Reprint: R1312H Conglomerates once dominated the U.S. business world. But by the 1980s, they’d been laid low by poor performance, inspiring the belief that focused corporations created more shareholder value. Today conglomerates are largely considered dinosaurs—except, that is, in emerging markets, where diversified business groups, comprising numerous unrelated enterprises, are flourishing. The authors, who studied Indian business groups for five years, believe that the key to these organizations’ success is their structure. Unlike corporate divisions, a group’s affiliate companies are legally independent. That allows them to raise capital, set strategies, and create incentives more effectively. Affiliates don’t report directly to the leaders of the business group but are overseen by the group center, a management layer in the group chairperson’s office. It coordinates the identity work that unites and inspires affiliates’ employees, and helps affiliates spot and seize opportunities, share resources and talent, and collaborate on strategic activities. Business groups using this model are not only profitable; they also outperform other companies in their markets.

Why Conglomerates Thrive (Outside the U.S.)

Summary.

Partner Center