Exploring the relationship between diversification and performance in Korea: are Chaebols any different from Western conglomerates?

Lee, Ji-Hwan (2004) Exploring the relationship between diversification and performance in Korea: are Chaebols any different from Western conglomerates? Doctoral thesis, University of London: London Business School.

Abstract

Contrary to the previous academic suggestions in the USA. and Europe, chaebols (large Korean business groups) continued to diversify for the last decades without adversely affecting their performance. Questioning this seemingly puzzling phenomenon, I examine the management of diversification in different institutional contexts. First, I challenge the traditional ways of measuring the extent of diversification. Measuring diversification with strategic considerations reveals quite different picture of the similarity between businesses from that based on traditional SIC codes, and can be used as a way to reconsider the contours of diversifiers. Empirical results show, however, that chaebols are still highly diversified into unrelated businesses even when we employ the concept of strategic relatedness. Second, I propose that chaebols may obtain more benefits by filling the institutional voids that are far more prevalent in emerging economies than in advanced economies. Evidence reveals that the level of institutional context in Korea lags behind that in the USA in numerous aspects. Value creation through filling the institutional voids by chaebols has been supported by external and internal enabling mechanisms, which was established and developed by chaebols' HQs with leadership, authority, and calibres. Finally, I focus on the structural and cultural mechanism through which various divisions are managed. I analyse whether chaebols could continue to diversify due to a more effective use of organisational mechanisms for managing diversity. Structural mechanisms such as strategic control and contingency arrangements were not so significantly associated with divisional performance, whereas socio-cultural mechanisms such as shared values and corporate-level training, were significantly and positively associated. This thesis highlights the importance of organisational capabilities for managing diversity in ensuring sustainable advantage over competitors. The results can be applicable to many business groups in emerging economies as well as those in developed economies, specifically regarding the function of corporate headquarters and strategic leadership.