The many futures of Asian business groups

What does the future hold for Asian business groups? This paper discusses three rival hypotheses whose predictions for the future of Asian business groups differ from the predictions of the prevailing institutional voids hypothesis. The latter is a two stage model that posits that business groups first emerge to solve market failures for affiliated firms. Subsequently government initiates the construction of a “soft market infrastructure” that plug institutional voids and so weakens the rationale for group affiliation. Groups should then unravel and dissolve. Yet, business groups remain important in Asian countries that have attained high levels of market development, which casts doubt on the institutional voids hypothesis. In this paper I review three alternative hypotheses of business group development—life cycle, state-led industrialization, and crony capitalism perspectives. A synthesis of these rival hypotheses suggests that Asian business groups are likely to persist in many possible future scenarios.