When does it make sense to focus business portfolios? A study of business group responses to institutional change in India
| Date | 12 December 2017 |
| DOI | https://doi.org/10.1108/JABS-09-2016-0124 |
| Published date | 12 December 2017 |
| Pages | 466-480 |
| Author | Kannan Ramaswamy,Saptarshi Purkayastha |
| Subject Matter | Strategy,International business |
When does it make sense to focus
business portfolios? A study of business
group responses to institutional change
in India
Kannan Ramaswamy and Saptarshi Purkayastha
Kannan Ramaswamy is
based at the Arizona
State University
Thunderbird School of
Global Management,
Glendale, Arizona, USA.
Saptarshi Purkayastha is
based at the Indian
Institute of Management,
Calcutta, India.
Abstract
Purpose –This paper aims to report the findings from a longitudinal study of Indian business groups
responding to the pro-market reforms that the government had initiated. It explores their diversification
choices at the group level and the group performance consequences of these choices during a period
of institutional changes (1990-2008).
Design/methodology/approach –Ordinary least squares regressions were used to analyze data
spanning the 1988-2008 study period for 98 Indian business groups.
Findings –Results show that business groups that focused their portfolios in the early stages of
institutional reforms tended to perform worse than their counterparts that did not do so. However, as
market reforms became more established, business groups that made the transition from an unfocused
to a more focused portfolio experienced superior performance consequences.
Originality/value –The findings underscore the temporal dimension of focusing and suggest that both
changing strategy by refocusing business portfolio too early or waiting too long to refocus can hurt
performance outcomes.
Keywords India, Performance, Diversification, Institutional change, Business groups,
Refocussing portfolios
Paper type Research paper
Introduction
The nature of an organization’s alignment with its environment has been a staple area of
research interest among scholars across a variety of disciplines such as strategic
management, population ecology and organization theory. Influenced by the classic works
by Thompson (1967) and Lawrence and Lorsch (1967), research in the organizational
sciences has provided rich insights into the use of strategy as the vehicle to achieve
alignment between an organization and its environment. The central tenet is that
organizations that tend to accomplish a dynamic equilibrium between their internal
resources and external environmental demands tend to outperform others that fail to
accomplish such alignment (Miles et al., 1978;Venkatraman and Camillus, 1984). Building
on this central tenet, organizational responses to changing environmental conditions have
been the subject of extensive study and have a rich tradition in the strategic management
literature (Lim and Das, 2009;Peng et al., 2015;Yi and Peng, 2011). A variation on this
theme of inquiry has recently focused on the institutional changes that result from major
upheavals in political systems, economic systems and regulatory systems that define
countries and their economies (Chang and Hong, 2000,2002;Khanna and Palepu, 2000a,
2000b;Kim et al., 2004,2010).
Received 12 September 2016
Revised 24 November 2016
Accepted 24 November 2016
PAGE 466 JOURNAL OF ASIA BUSINESS STUDIES VOL. 11 NO. 4, 2017, pp. 466-480, © Emerald Publishing Limited, ISSN 1558-7894 DOI 10.1108/JABS-09-2016-0124
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