The diversified business group as an innovative organisational model for large state-enterprise reform in China and Vietnam

International Journal of Entrepreneurship and Innovation Management

Volumn 5, Issue 5-6, 2005, Pages 379-400

  Abegaz, Berhanu ^a  

^a The College of William and Mary   (United States)

Author keywords

China; diversified business group; late industrialisation; organisational innovation; state enterprises; Vietnam

Indexed keywords

EID: 43049114066     PISSN: 1368275X     EISSN: 17415098     Source Type: Journal    
DOI: 10.1504/ijeim.2005.006995     Document Type: Article

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70. The top 30 chaebols had an average of 616 affiliates while the top five had an average of 40 affiliates. Much of the growth for these fiercely competitive groups came from the establishment of new subsidiaries rather than from recruitment of non-affiliated firms. Even in Taiwan, not known for its industrial (firm) concentration, some 100 of the biggest groups accounted for one-fifth of manufacturing value added.
71. Nolan (2002, p.121) sums up the nature of State support to selected SOEs, 11 of whom made it in Fortune 500 in 2001, this way: ‘China’s chosen global giant corporations were supported through industrial policies, which included: tariffs, which still were significant in many sectors at the end of the 1990s; non-tariff barriers, including limitations on access to domestic marketing channels, requirements for technology transfer and to sub-contract to selected domestic forms as the price for market access; government procurement policy; government selection of the partners for major international joint ventures; preferential loans from State banks; and privileged access to listings on international stock markets. Parenthetically, some two-thirds of the large stock of FDI (US$ 700 billion) that China has received in the past two decades went into the modern industrial sector – a sector that provides employment for over 40 million workers.
72. Although most of the 5,500 SOEs are quite small, Vietnam does not yet have anything comparable to China’s dynamic TVEs. Of the 2,280 SOEs planned for restructuring in 2000, some 380 were to be divested by 2002, of which fewer than 200 had assets valued in excess of one million USD. Average assets (fixed plus working capital) for the largest 100 SOEs are, however, valued at US$ 70 million – about one-tenth of the average size of 117 diversified firms in Indonesia (World Bank, 2000). The stock of FDI in Vietnam currently stands at about US$ 20 billion.
73. Industrial districts are regions that enjoy agglomeration or cluster economies where flexible specialisation, and competition over product innovation enable small firms to gain access to large domestic and export markets. National and local governments stem coordination failure by providing essential infrastructure and other business services. In the large textile and apparel districts of the Yangtze River, for example, ‘The Chinese government has played a crucial role, opening huge swaths of land for development, forming giant industrial parks, doling out tax benefits and developing the infrastructure and transportation networks needed to move products quickly to market’ (Barboza, 2004, p.3).
74. The flying geese (FG) model of East Asian development, proposed in the 1930s by Akamatsu (1962), posits a sequential and ever-changing division of labour between the industrial leader (Japan) and its followers. Efficient latecomers can move up, even leapfrog, the ladder of comparative advantage by using labour and resource-intensive manufacturing as a springboard for upgrading national technological capability.