In a
1997 Harvard Business Review article Tarun Khanna and Krishna Palepu advanced the idea that focused strategies may be wrong in emerging markets. Companies in emerging markets must take responsibility for a wide range of functions in order to do business effectively. Thus highly diversified business groups can be particularly well suited to the institutional context in most developing countries, adding value by imitating the functions of several institutions that are present only in advanced economies, particularly capital markets, labor markets, product markets, governmental regulation, and contract enforcement.
Twelve years later McKinsey’s consultants Francisco Caudillo, Skief Hoube, and JehanZeb Noor demonstrated that corporations that expand their focus tends to add more value in emerging economies than in developed ones. According to their research published in the
McKinsey Quarterly, in emerging economies the most diversified companies created the highest excess returns, 3.6 percent, compared with –2.7 percent for pure players. By contrast, in developed economies, thie research uncovered almost no difference in excess TRS for any degree of focus or diversification.
