Why focused strategies may be wrong for emerging markets

Core competencies and focus are now the mantras of corporate strategists in Western economies. But while managers in the West have dismantled many conglomerates assembled in the 1960s and 1970s, the large, diversified business group remains the dominant form of enterprise throughout many emerging markets. As those markets open up to global competition, consultants and foreign investors are increasingly pressuring groups to conform to Western practice by scaling back the scope of their business activities. Already a number of executives have decided to break up their groups in order to show that they are focusing on only a few core businesses. There are reasons to worry about this trend, say the authors. Focus is good advice in New York or London, but something important gets lost in translation when that advice is given to groups in emerging markets. Western companies take for granted a range of institutions that support their business activities, but many of those institutions are absent in other regions of the world. Companies must adapt their strategies to fit their institutional context: a country's product, capital, and labor markets; its regulatory system; and its mechanisms for enforcing contracts. In contrast to advanced economies, emerging markets suffer from weak institutions in all or most of these areas. Conglomerates can add value by imitating the functions of several institutions that are present only in advanced economies. Successful groups effectively mediate between their member companies and the rest of the economy.