Agents of development or dependency? A case study of an Indian family business group

I apply organizational theories to an analysis of business groups in India to understand what are supposed to be key actors in the development process. Data come from a case study of a large family business group in India (the Mahindra group) as it developed over the last 50 years.; A transaction cost theory of diversified groups is that management uses superior information to allocate funds internally to the best uses. From a modernization perspective, one would expect the Mahindras, as agents of modernization, to economize on two scarce resources: capital and managerial talent. The Mahindras did the opposite. They allocated funds to those firms that were doing the worst, that had the least potential (as evidenced by ultimate failure), and whose troubles were due to the Mahindras' failure to stay ahead of technology. Even the purchase of products by other group firms was a form of aid.; While the Mahindras weren't perfect agents of development, neither were they part of an internationalized business class lacking interest in local accumulation. Although, the Mahindras accepted continuing dependence on foreign technology, they managed by diversifying links to foreign companies and replacing sources of technology. The Mahindras sourced from hundreds of local suppliers. They kept investment local by finding new uses for productive resources when their foreign partners abandoned joint ventures. The Mahindras were embedded in networks with other Indian business groups who provided assistance to each other. They were dependent on government agencies for finance, licenses, and other key resources. Thus there were powerful incentives to take a long-term interest in their reputation in India.; Since liberalization in 1991 there has been both change and continuity in the business environment and Mahindra group strategy. They face intense competition from local and multinational companies. The Mahindra family is determined to maintain control of their group. While they attempt to make some of their manufacturing ventures technologically self-sufficient and globally competitive; should this fail they appear to be prepared to move into service industries of real estate, construction, infrastructure, and trade---and perhaps the sidelines of industrial development.