The continuing prominence of large,highly diversified business groups in many emerging market countries (e.g.Tata Group in India)is mainly the result of:
A)The political connections of a few leading business leaders
B)High transaction costs in capital and labor markets in these countries which favor the deployment of resources within large diversified corporations
C)Barriers to direct investment which protect these companies from overseas competition
D)The failure of emerging market business leaders to appreciate the benefits of refocusing

Question

Quizplus · Accepted Answer

High transaction costs in capital and labor markets in many emerging market countries make it difficult and expensive for small firms to obtain finance or to recruit skilled employees. As a result, large diversified corporations are better able to deploy resources efficiently, reduce transaction costs, and take advantage of economies of scale. This is why business groups like the Tata Group in India have continued to thrive even in the face of liberalization and globalization. Political connections (A) and barriers to direct investment (C) may also play a role, but they are not the main reason for the persistence of large business groups. The failure to appreciate the benefits of refocusing (D) may be a factor, but it is not as important as the structural constraints that favor large diversified corporations.

The Continuing Prominence of Large,highly Diversified Business Groups in Many