Richard Branson, perhaps the UK’s best-known entrepreneur, owns more than sixty different companies (www.virgin.com). There are Virgin companies operating in most areas of the world, covering a bewildering variety of sectors (financial services, health and wellness, music and entertainment, telecoms and media, travel and leisure). The only things that connect a company like Virgin Trains and Virgin Balloon Flights, for example, are the Virgin brand name and the ownership of Richard Branson. To decipher the full spectrum of Virgin companies and how they developed from Richard Branson’s first venture in 1960 would be a complex and difficult exercise. Over the years, there are joint ventures, acquisitions, divestments, failures, as well as a consistent string of new ventures. Although Richard Branson appears as a lone entrepreneur heading the group, the Virgin website proudly proclaims the Virgin Group as ‘a family-owned growth capital investor’.
The Virgin Group is but one example of thousands of entrepreneur-founded family businesses that appear as single businesses in their publicity, but are in fact groups of legally independent businesses bound together by shared family ownership and management control. The most complex are large family businesses that have existed for several generations and which have developed sizeable business portfolios over the years. The Nurminen family in Finland, for example, has built up an extensive portfolio of companies since its origins in the late nineteenth century (Rautiainen 2012). Family business groups exist all over the world and appear to thrive in many different business environments and settings. Masulis et al. (2011) in a broad cross-national study found that an average of 19 per cent of firms listed on the world’s stock exchanges were family-owned or controlled business groups and that the proportion was as high as 40 per cent in countries with emerging markets. Their study only referred to listed companies. There are many other large privately owned business groups not listed as public companies. As they are not listed on stock exchanges, their activities are less visible.
Since the 1970s, there has been considerable research on large business groups. Research has particularly centred on three core questions: Why do business groups exist? Does a business group structure enhance performance, and if so, in which context? Are the overall effects of business groups in the wider economy and society positive? Carney et al. (2011), in a meta-analysis of 141 research studies on business groups in 28 countries, have concluded ‘that affiliation diminishes firm performance in general, but also that affiliates are comparatively better off in contexts with underdeveloped financial and labour market institutions … Overall, our results indicate that affiliate performance reflects complex processes and motivations’ (Carney et al. 2011, p. 437). A consensus has emerged on four issues (Carney et al. 2011):
- 1.That business groups are groups of firms which consist of a number of legally independent firms bound together by formal and informal ties and which are subject to coordinated action (Khana and Rivkin 2001).
- 2.That business groups commonly occur in all capitalist-based countries where larger firms are permitted and operate (Yiu et al. 2007).
- 3.That there is a large diversity of forms of business groups, some of which, such as conglomerates, are more complex than the traditional multi-divisional form of corporate organization where a parent company owns and coordinates a group of smaller companies.
- 4.That business groups are especially common in developing countries where market failures, poor regulatory and legal institutions, and corruption encourage internalization of transactions and the spreading of risk through smaller legally independent companies rather than in one large unaffiliated one. Research on business groups in emerging markets has proliferated as emerging countries have grown in economic importance (Khanna and Palepu 1997, 2000a, b; Yaprak and Karademir 2010).
A number of questions arise from the prevalence and complexity of large-scale business groups. How much diversity is there in the scale and nature of business groups, and how does this diversity reflect differing regulatory and market contexts in different sectors, countries and regions? How have complex business groups arisen, and why do they continue to persist and exist in a modern corporate business environment where the fashion has been a preference for concentration and specialization rather than unrelated diversification? How much more complex are family business groups than non-family corporate groups? Why do large family business groups vary in prevalence in different parts of the world? In particular, why do they seem more numerous in developing countries?
Large family business groups represent a low proportion of the total stock of family businesses, but in some countries they can account for a sizeable proportion of annual economic growth and job generation. In Uganda, for example, one family group alone, the Madhvani Group, are the largest private sector employers and taxpayers in Uganda (Balunywa 2009). Their 27 companies in Uganda are themselves part of a wider family conglomerate that operates in many other countries. The Sawiris family in Egypt is the largest private sector contributor to its economy, with its global Orascom Group specializing in construction, telecommunications and tourism (Hatem 2012). In the Far East, family business groups such as Sony, Samsung, Mitsubishi and Alibaba are leading global companies. Even in the USA, what appear to be single corporations are, on closer inspection, entrepreneur-led business groups. The Microsoft Corporation, for example, has acquired 209 companies since its foundation, has divested 64 and has sizeable interests in 32 other companies.
It is our contention in this book that the ‘complex processes and motivations’ observed in many corporate business groups are greatly magnified where entrepreneurs and families are involved in the business. It is only recently that any attention has been paid to large family business groups (Masulis et al. 2011). The family business group researchers have begun to assess how far business group organizations are different in family firms; how far cross-cutting family motivations and ownership complicate the scale, nature and forms of a business group; and whether there are problems and advantages unique to family businesses in the way a business group is structured.
In every country, the largest number of businesses are small- to medium-scale family businesses, many of which are structured as small business groups. In their Scottish study, Rosa and Scott (1999) estimated that over a quarter of all businesses registered as companies were groups, funded by an entrepreneur or a family, and that nearly a fifth of partnerships were associated with more than one firm. In developing countries too, ownership of multiple enterprises has been observed to be common in the small- and micro-business sectors (McGaffey 1987; Kiggundu 2002; Rosa et al. 2006). Why are such families not concentrating on growing a single business rather than (apparently) dissipating their energies among two or more enterprises? What advantages does a small group have over a single venture? Is opting for a multiple enterprise organization more advantageous in some contexts than in others? How far do family ownership and goals complicate the management of a business group even at a small scale of operation? Put another ...