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The history of Samsung and its central office shows the influence of exogenous social and economic change on business-group structures and the endogenous development of capacity in a business group. This paper investigates how transaction cost operates in regard to group size and the functions retained or otherwise, centralized or decentralized, by central office. In relation to business-group development, the effectiveness of transaction cost and active capacity-building are examined and weighed. Entrepreneurs reacting to external changes have raised group capabilities and sought to maintain group integrity. The central-office activities of allocation, ratification, nurturing, and sharing are also discussed and conceptualized.

Under what conditions do business groups become large, and under what conditions do they become integrated? As business units with ambiguous boundaries, especially in East Asia, business groups have been the subject of many studies, both theoretical and empirical. Although previous studies on business groups have generally followed the performance approach, we introduce two dimensions of group-likelihood – extension and integrity – as the substance of business groups. On the basis of this theoretical background, we analyze the influences of various elements on group-likelihood, especially in China, by observing 1561 listed companies in the Chinese A stock market. We conclude that (i) marketization decreases only extension, not integrity; (ii) surplus resources increase both; (iii) state ownership increases extension, whereas private ownership increases integrity; (iv) indirect control increases extension, whereas direct control increases integrity; and (v) government promotions increase both. These conclusions help understand the substance of the business group phenomenon and clarify the complex business conditions in China, an economy undergoing incremental transition for more than 30 years.