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JSPES, Vol. 26, No. 4 (Winter 2001 )
pp. 719-758

Diversification as a Corporate Strategy for a Family-Controlled Business Group in a Frontier Market

Mahfuzul Haque and M. Kabir Hassan

This study focuses on a family controlled firm "Beximco Group" in a frontier market economy, which during its thirty five years of existence, has grown to become the leading business organization in Bangladesh. In this study, we look at the gains obtained via diversification in a setting that is completely different from the Western world. Bangladesh is a country that has been characterized as a "frontier market" by the IFC, a subsidiary of the World Bank. Most of the ideas reflected in the literature are from studies done in the U.S. The broad ranges of institutional features that support business activities in the West are all absent in Bangladesh, and the findings in the literature may not be a practical application for emerging market economies and frontier markets, which are a step behind emerging markets. Devoid of all institutional facilities and features that the West offers in the corporate world, we find that diversification leads towards growth and value creation in Bangladesh. Using accounting and market information from Audited Financial Statements from 1983-1995 and the IFC's EMDB data, we document that Beximco Group has made significant progress towards the path of growth and value creation. The findings support the hypothesis of growth through diversification. This result is consistent with that of Khanna and Palepu (1997) who observe similar findings for emerging market economies such as Chile and India. Baker (1992) notes that the role of diversification for the growth of Beatrice from a small creamery firm to one of the largest conglomerates in the U.S., is similar to what we see today in Beximco's growth. Diversification played a leading role for the rise in prominence for the group in Bangladesh.