164 l REGIONAL INVESTMENT PIONEERS IN SOUTH ASIA
FIGURE 4.7 The Role of Conglomerates and Business Groups in South Asia Source of finance
23
Source of information
20
Supplier of goods and specialized services
16
Source of technology and management capabilities
12
Consumer of goods and services
10
Identifies synergies with group firms
8
Shepherd through early phase of new business
7
Access to political connections to facilitate business
4 0
5
10
15
20
25
Percent Source: South Asian Regional Engagement and Value Chains Survey. Note: Figure shows the percentage of respondents (N = 313) who chose each category in the question “How is your business group most important in facilitating trade and investment, and conducting business abroad?”
in capital markets, talent markets, and contracting. Although conglomerates tend to be regarded as less important in advanced economies, there is some evidence that they are equally or more profitable than firms unaffiliated with a business group. The results here suggest that business groups also act as a means of capturing the spillovers of knowledge generated outside the source firm by passing the knowledge to other firms in the group or even incubating new firms that could use the generated knowledge.11 Most of the pioneers in the case studies belonged to conglomerates. Only Timex Garments of Sri Lanka and Soorty Enterprises of Pakistan are not parts of conglomerates. UNRELATED FOLLOWER FIRMS ARE LESS LIKELY TO SUCCEED BECAUSE OF “STICKY KNOWLEDGE” The limited number of investors in the survey sample makes an econometric analysis with national follower firms in the same industry difficult. Although there certainly have been pioneering activities, the cascade effect or the herd effect has not been visible for investments. The closest evidence of an industrial cluster of national firms abroad in South Asia is the presence of some Indian, Pakistani, and Sri Lankan apparel manufacturers that have invested in Bangladesh. Both of Sri Lanka’s top apparel conglomerates have also invested in apparel manufacturing in India, albeit a decade apart. The success of CG Foods’ Wai Wai noodles has fostered a vibrant instant noodle industry in Nepal, with some firms exporting. Other than CG Foods’ investments in the NER, not many Nepali firms have invested outside the country. Similarly, although the growth of Bhutan Ferro Alloys Ltd. in Bhutan has led to the development of other ferrosilicon exporters, no exporters have engaged in trade-supporting investments. On the other hand, Bhutan Ferro Alloys’ growth has induced inward foreign investment from India.
