Western corporate strategies have long been held up as role models for businesses in emerging markets. The reaction to recent financial crises in Asia and Latin America has only served to reinforce this practice. The multilateral financial institutions, consultants, and academics that advise businesses and governments in emerging economies have all been pressing for a closer convergence of first-and third-world business models for the private sector. The details differ, but the advice boils down to the same thing in virtually every emerging economy: dismantle the diversified business groups that dominate the private sector. These include huge conglomerates such as the chaebol in Korea, the Tata Group in India, and the Koç Group in Turkey. The arguments for restructuring conglomerates are simple. Selling off assets could quickly reduce the huge debt some of these groups have built up. More fundamentally, though, breaking up these mammoth organizations could reduce their gross inefficiencies and promote greater entrepreneurship. Implicitly or explicitly, then, the Western financial community is encouraging business groups in emerging economies to unbundle their assets in the same way that companies in advanced economies did in the 1980s.
The Right Way to Restructure Conglomerates in Emerging Markets
In many countries, diversified business groups substitute for the institutions that support effective markets in capital, labor, and goods and services. Their capacity for doing this must be strengthened through restructuring, not destroyed through dismantling.
A version of this article appeared in the July–August 1999 issue of Harvard Business Review.