Analysis of Business Groups in China Essay Example | Topics and Well Written Essays - 2500 words

Analysis of Business Groups in China - Essay Example Research has uncovered that business groups are so successful in China due to the fact that they provide influence in changing the infrastructure for capital procurement, such as building incentive for lenders to assist business growth, and also giving the country the ability to effectively compete against traditionally-structured conglomerates internationally. Utilising two specific examples of successful business groups in China, this report recommends that China continue to embrace business groups as a key competitive advantage over other nations across the world. Findings indicate that Chinese business groups improve social welfare and also enhance the economic strength of a developing Eastern economy. There is no evidence provided showing a detriment for ongoing operations of important Chinese business groups. An analysis of business groups in China Introduction Business groups are found virtually everywhere in Asian nations. Business groups are defined as â€Å"a group of lega lly independent firms, which operate in many different markets, bound together by enduring formal and informal connections† (Khanna and Yafeh 2005, p.332). There are typically three different types of business groups: vertically-controlled groups (or pyramidal in design), horizontally-controlled groups and informally-bounded groups that are connected with a common social tie or a singular sense of business mission or identity. Business groups in China differ substantially from the traditional conglomerate business structure commonly found in Westernised nations. Whilst the conglomerate business structure is rather standardised, meaning a typical combination of two or more established companies operating under a single parent company, the business group structure involves a group of independent companies sharing a singular managerial relationship (Khanna and Yafeh 2005). Business groups have accounted for approximately 60 percent of China’s total industrial, national out put (China Statistical Yearbook 2000). Hence, there is ample evidence that business groups have been monumentally important in creating new and self-sufficient markets, established industrial and supply infrastructures and also raised beneficial capital necessary to build an industrial and commercial empire in the country. Based on all research findings, business groups in China are highly advantageous economically, commercially and socially and should continue to be adopted by this developing nation. The development of business groups in China Between the 1970s and 1990s, emergence of Chinese business groups continued to escalate. In a country where the government plays a significant role in regulating and controlling business practices, Chinese government officials realised that the country was not advancing, in terms of competitive business output, to the rest of the developed world. In response, the government began to evolve its industrial policies in an effort to support incre asing global business competition. The end result of this liberalisation in governmental business regulation established many different, large business groups that were formed, primarily, through the inheritance of large industrial plants carried over from the previous command economy (Nolan 2001). It was through governmental policy changes that large business groups were formed, sustaining adequate capital and production resources that began to put China on the proverbial map toward becoming a powerhouse of international competition. Why is the intervention of the government between the 1970s and 1990s important to understanding the potential benefits of Chinese business groups? China maintains, as a developing nation, a very feeble and under-developed legal system and a rather