Abstract
Business groups emerge in developing economies through direct or indirect support from the state in order to overcome a variety of institutional voids and/or to further state objectives of economic growth. However, the efficacy of this organizational form and its associated governance structures has been debated given business groups’ dual possibility of allocating resources for capability building among affiliated firms (paragons) or appropriating benefits through tunneling or co-insurance (parasites). We argue that elements of the institutional environment comprising the state’s approach to organizations and the political context of state–organization interactions influence business groups’ resource allocation strategies, as reflected in the persistence of affiliated firms’ superior performance. Using China and India as examples of two distinct institutional contexts, we develop and test our hypotheses with a panel of 1,153 large firms from these two countries for the period from 2005 to 2010. We find that the positive effect of business group affiliation on firm performance persistence is stronger in China than in India and that the performance persistence differential decreases for internationalized affiliates of business groups from the two countries. Our findings have implications for an understanding of business groups across institutional contexts and the influence of diversity in state capitalisms on organizational strategies.

Preet S. Aulakh is Professor of Strategy and the Pierre Lassonde Chair in International Business at the Schulich School of Business, York University. He received his Ph.D. in Business from the University of Texas at Austin, and B.S. (Mathematics) and M.A. (History) degrees from Panjab University, Chandigarh, India. His research focuses on three broad areas: the interactions of governance structures and relational dynamics in improving performance of dyadic as well as portfolio of firms’ international alliances; international technology licensing; and much of his recent research focus is to understand the internationalization of firms from emerging economies. Within the geographical contexts of India, China, and Latin America, his research explores how firm and institutional factors influence the extent and diverse paths of organic and inorganic growth of organizations from these countries. His research has been published in journals such as the Academy of Management Journal, Journal of Marketing, Journal of International Business Studies, Organization Science, Journal of International Management, Journal of Management Studies, Journal of World Business, Academy of Marketing Science Journal, among others. He has co-edited two books and edited journal special issues on emerging market multinationals. He is the past editor of the Journal of International Management and is serving as a consulting editor for the Journal of International Business Studies.