Why Do Organizations Form Groups?: Complex Structure and Behavior of Japanese Groups from 1977 to 1998

Although it has been a well-known fact that Japanese business groups have consisted of two types of network, the structural difference between them has not been paid enough attention to by researchers. Applying the techniques of network analysis and regression analysis to data on a total of 2,972 large Japanese firms over a 22-year period, this papaer demonstrates the correspondence between network structures and the three different goal-pursuing behaviors of firms. 

Corporate Complexes (i.e., the largest six cross-industrial corporate networks with a circle pattern of bilateral equity ties) had a significantly positive effect on member firms’ status-oriented behavior as well as on firms’ technology-oriented behavior. However, the effect on firms’ efficiency-oriented behavior was not confirmed with the same dataset. Meanwhile, Corporate Groups (i.e., the seven corporate networks in the automobile industry with a tree or star pattern of unilateral equity ties) had a positive effect on member firms’ economic behavior as well as a negative effect on member firm’s technological behavior. In the case of the economic effect, however, only superordinate firms benefited from corporate groups. The effect of corporate groups on member firms’ social behavior was not confirmed. The patterns of group structures and member firms’ behaviors did not change throughout the observation period despite the fluctuation of the macro economic environment.

From the analyses, these findings suggest that Corporate Complexes were a system of resource-acquiring by means of firms’ high social status, while Corporate Groups were a system of making profits to sustain the costly system for superordinate firms. (For subordinate firms, corporate groups were the system for bare survival.) Both structures were thus complementary to each other. Shielding the member firms against environmental fluctuation and technological uncertainty, Japanese business groups, by virtue of their complex structure, simultaneously pursued multiple goals as a united body.