Project topics and materials
Get Complete Project Material File(s) Now! »
Frame of references
Internationalisation
Internationalisation is the process of transferring a company’s operations abroad (Fernandez & Nieto, 2005). Johanson and Vahlne (1977) describe internationalisation as a business pro-cess, where a company increases its scope of operations abroad. The authors also identify two types of internationalisation: “immediate” and “gradual”. The first type of internation-alisation, immediate or as called in literature “born global” (Knight, & Cavusgil, 1996; Oviatt & McDougall, 1994), describes companies that are international from inception, as the mar-ket is too saturated for organic, or steady growth. There has been extensive scholarly research about this type of internationalisation, in family firms and non-family firms, as well as in different industries as suggested by Kontinen and Ojala (2010), so this research will not focus on deepening understanding in this area. The second type is gradual (Cavusgil, 1980, Johan-son & Vahlne, 1977). It is the most common type of internationalisation as suggested by Conconi, Sapir & Zanardi, (2014) and our research concentrated on this type of internation-alisation. Johanson and Vahlne’s (1977) “Uppsala model of internationalisation” is particu-larly based on and aimed to explain gradual internationalisation.
The authors also describe that gradual internationalisation starts with indirect types of inter-nationalisation, such as export, agents or distributors where the business is not involved in the process directly, and that indirect internationalisation is a “learning process” of the for-eign market (Oviatt & McDougall, 2005; Rialp, Rialp, & Knight, 2005). Direct international-isation follows next, when the company gets enough knowledge about the market specific factors from exporting through trial and error testing (Conconi et al, 2014), it then chooses to transfer its operations by subsidising or joint venturing to that market. Internationalisation is highly desired by most companies, as there are many long-term and short-term benefits. Benefits include: increased sales, profits, security, and innovation as well as less costs (Biggs, 2013).
Exporting is considered the most common foreign market entry mode, due to the minimal business risk and capital required (Leonidou, Katsikeas & Piercy, 1998). Hence, the research concentrates on exporting as an internationalisation strategy.
Definition of family firms
As the topic of this research is based on the context of family firms, it should be defined what a family firm is. In the literature on family firm, there is no single agreed definition (Chrisman, Chua and Sharma, 2005; Ibrahim, Angelidis & Parsa, 2008; Mitter et al. 2014). However, Karra, Tracey and Philips (2006) point out that there is an agreement that family firms are distinct from non-family firms. In the different definitions of the family firm, some of the most common aspects are ownership and management: family members own the larg-est number of ordinary voting shares of the firm (Cromie et al., 1995; Crick, Bradshaw & Chaudry, 2006); the management team consists of at least one member from the dominant family who owns the business (Daily & Dollinger, 1992; Crick et al. 2006). If the family owns the majority of stocks and controls the management of the firm, it has a strong involvement in and influence on the firm, which Hoffman, Hoelscher & Sorenson (2006) regard as the basic characteristic that differentiates family firms from non-family firms. Furthermore, the high involvement and influence of the family is the base for family capital (Danes, Stafford, Haynes & Amarapurkar, 2009; Nahapiet & Ghoshal, 1998).
Family capital
Family capital includes the human, social, and financial resources that are available to indi-viduals or groups as a result of family involvement and influence (Danes et al. 2009; Nahapiet & Ghoshal, 1998). In other words, Danes et al (2009) conceptually defined family capital as the “total resources of owning family members with components of human, social, and fi-nancial capital”. Of course non-family firms also have human, social and financial capital. However, due to the co-existence of the family and the firm, those are different in family firms compared to non-family firms (Hoffman et al, 2006). Family firm researchers and the-orists often use the concept of “family capital” when describing advantages of family firms over non-family firm (Habbershon & Williams, 1999; Hoffman, Hoelscher & Sorenson, 2006). Portes (1998) considered family capital as a primary source of information, influence, control, and solidarity. Increased family capital can improve productivity of family members (Dollahite & Rommel, 1993). Hoelscher (2002) implied that family capital facilitate family members to communicate effectively and efficiently.
In the next sections, family human capital, family social capital, and family financial capital (and other tangible assets) are explained respectively. Thereafter, advantages and also disad-vantages gained from these resources are analysed in regard to internationalisation.
Family human capital
In family firms, family relationship and business relationship are so mixed between family members that the duality of these relationships improves the complexity and creates a special context for human capital (both positive and negative), compared to non-family firms. Pos-itive factors of family firms’ human capital include extraordinary commitment (Donnelley, 1964; Horton, 1986), firm-specific tacit knowledge (Sirmon & Hitt 2003) and loyalty. Because the family name is often “on the building,” family members involved in the business will naturally be more motivated and committed to the business (Rosenblatt, Anderson & John-son, 1985; Ward 1987). Furthermore, family members develop a deeper understanding of firm-specific tacit knowledge (Sirmon & Hitt 2003), which is difficult to codify and can only be transferred through direct exposure and experience (Lane & Lubatkin, 1998). Because family members have closed and solid connections and are loyal to each other, they are nor-mally willing to make some sacrifices such as longer working hours with no or little compen-sation and higher flexibility of working roles and assignments, in order to make some con-tributions to the success of the family firm. (Light & Gold 2008; Rosenblatt et al. 1985). Thus, Herrero (2011) concludes that family employees make better performances than ex-ternal employees without any family connections with the firm after studying small Spanish family firms managed almost completely by family members. Also, family human capital in-cludes knowledge of “how to do business” handed down from one generation to the next (Dyer, Nenque & Hill, 2014). For example, as was found in the data collected for this re-search, through informal conversations over the dinner table or football yard, by watching their parents at work, and through summer jobs or other employment in their parents’ busi-nesses, children come to understand how to make high-quality products, find customers, and make sales: essentially learn about the business. Moreover, parents or other family members can teach both the mechanics and the art associated with running a business. This facilitates future generations of family members gaining knowledge that is generally unavailable to those outside the family. Such knowledge from personally participating in family firms and learning from parents is generally unavailable to those outside of the family.
On the downside, however, it is often very difficult for family firms to attract and retain highly professional managers (Sirmon & Hitt, 2003), due to the exclusive succession, limited potential for professional growth, lack of perceived professionalism, and limitations on wealth transfer (Covin, 1994; Burack & Calero, 1981; Donnelley, 1964; Horton, 1986). Fiegener, Brown, Prince and File (1996) found that while non-family firms emphasised out-side work experience and university training in promotion decisions, family firms rarely did so. So, nepotism is also one of the obstacles to the growth of family firms. Nepotism, which is defined as kinship employment in which a non-objective performance assessment, rather than efficiency, matters when making employment and promotion decisions (Vinton, 1998). Fukuyama (1995, p. 64) remarked that “a single family, no matter how large, capable, or well educated, can only have so many competent sons, daughters, spouses, and siblings to oversee the different parts of a rapidly ramifying enterprise” (see also Vinton, 1998).
Family social capital
Social capital refers to opportunities and resources that arise from relationships between ac-tors in a social network, and it is different from other types of capital, such as financial, physical, or human capital (Adler & Kwon, 2002; Coleman, 1988; Nahapiet and Ghoshal, 1998). Nahapiet and Ghoshal (1998, p. 243) defined social capital as: « the sum of the actual and potential resources embedded within, available through, and derived from the network of relationships possessed by an individual or social unit. Social capital thus comprises both the network and the assets that may be mobilized through that network ». This definition points out that social capital is a special resource and asset derived from social networks. Social capital has been regarded as the particular feature of family firms (Salvato & Melin, 2008), compared to non-family firms, because of the involvement of families and the duality of family relationships and business relationships (Hoffman & Sorensen, 2006). Also, some researchers point out that families are critical sources of social capital everywhere (Bourdieu 1993; Fukuyama, 1999; Newton, 1997; Putnam, 1995; Winter, 2001). Hence, social capital in family firms is obviously different from that in non-family firms. Social capital in family firms is called family social capital. Next, the three dimensions of family social capital are discussed: cognitive dimension (norms and shared values), structural dimension (social networks), and relational dimension (social trust) (Winter, 2001). In addition, resources derived from each of the dimensions are explained.
The three dimensions
Cognitive dimension
Cognitive dimension of social capital refers to the production and maintenance of shared values or paradigms, as a result of cognitive thinking, contributing to common understanding and cooperative actions or behaviours (Nahapiet & Ghoshal,1998). Pearson et al. (2008) mentioned that the cognitive dimension of social capital is made up of shared vision and purpose, unique language, stories and culture in the group. Shared value, according to Na-hapiet and Ghoshal (1998), is described as a source of organisational advantage. It helps to create common understanding and to focus on same organisational goals, with unified norms, values and ideology.
For family firms, they have very strict norms and values, corresponding to direct affiliation with organisational culture (Bourdieu, 1994). Also, a strong family culture with clearly defined and understood values and norms can result into ‘greatest result a business can have’ (Ar-onoff & Ward, 1995). Family culture (norms, values and beliefs) has direct links with the creation of family capital in the business (Arregle, 2007). The cognitive dimension of social capital provides three benefits: solidarity, strong culture and associability.
As for solidarity, generally, family firms are easier to gain advantages by building management systems based on trust and loyalty (Swinth & Vinton 1993). Ward and Aronoff (I991, p. 44) noted that « some firms have eschewed the kinds of policies and practices that build commit-ment, loyalty, and trust. However, family firms that retain such fundamental values as guides to decisions and operations find themselves at a strategic advantage. » Family members are less likely to leave the firms; even if one members does leave, his/her position may be re-placed by another family member with the same perspective; when a family member returns to a family-owned business, a place is often found (Svinth & Vinton 1993).
Family firms have strong culture derived from family culture including shared norms and beliefs and/or solidarity, the feature that permits a common understanding of appropriate ways of acting, promotes collective identity and reduces the need for formal controls and transaction costs. (Adler and Kwon, 2002; Nahapiet and Ghoshal, 1998; Denison, Lief and Ward 2004).
As for associability, from cognitive dimension, family social capital brings cooperative goals and actions. Leana and Van Buren (1999, p. 541) state that “associability” refers to the “[…] willingness and ability of participants to subordinate individual goals and associated actions to collective goals and actions.” Associability partially depends on high interdependence among family members and “general understandings of work organization, implicit norms, and generalized, resilient trust” (Leana & Van Buren, 1999, p. 549). Lansberg (1999) consid-ered that family firms need discussion and interaction to develop a cohesive, value-driven purpose. Family firms provide special circumstances to create greater opportunities for shar-ing information and working collectively in the family firm (Pearson et al 2008).
However, Anderson et al. (2005) pointed out that family firms do not consider outsiders reliable, as they do not have the same long-term commitment and instead, might leave, while family values hold stronger relationship between family members. Moreover, according to Fukuyama (1995), family firms select their employees and partners based on the internal culture of the family. Healy, (2004) also mentioned that exclusive family networks may also be used to exclude those who are not considered “like us”.
Structural dimension
The structural dimension of social capital refers to the social interactions within the members of a collective (Pearson, Carr & Shaw, 2008). In family firms, relationships among family members are generally very strong, intense, enduring and long-term (Hoffman et al. 2006). There are two main reasons for this. Firstly, the boundaries between work and family social relationships and family events are not explicit so that interactions between family firm mem-bers may continue after working hours (Arregle, Durand & Very, 2007). And secondly, the frequent interactions between family members in family firms can be also kept by some ac-tivities outside of work (e.g. family gatherings), as suggested by Mustakallio, Autio and Zahra, (2002) or by constructions of family council (Magretta, 1998). The good relationships among family members are what give rise to high stock of family social capital.
There are two theories that help to understand the benefits of the structural dimension in family firms. The term of network transfer, or “appropriability”, describes how ties among one group could easily be transferred to another (Coleman, 1988). Good internal relation-ships can help to create new external contacts and facilitate cooperation among groups (Healy, 2004). The other theory is the structural hole: which describes how family social capital provides brokerage opportunities in a network and helps to explain the positive ex-ternalities of internal relationships to external relationships: some internal agents, such as family members, can be brokers in relations between people otherwise disconnected in social structure, in terms of the information and control advantages (Burt, 1987). Hence, from structural perspective, family social capital provides an information channels and a channels of dispute resolution for family firms. Trusted networks provide effective information chan-nels within the family firm and with outsiders (Hoffman & Sorensen, 2006). Numerous re-searchers have investigated the benefits of information from trusted networks. Effective in-formation channels facilitate the access to “broader sources of information and improve information quality, relevance, and timeliness” (Adler & Kwon, 2002, p.29). Frequent inter-actions in trusted networks can save resources to access to information, keep information up-to-date (Coleman 1988) and trigger innovations (Burt, 1987; Coleman et.al., 1966). Powell and Smith-Doerr (1994) and Podolny and Page (1998) insisted that firms can acquire knowledge, technology and skills by effective interrelations between organizations. Mean-while, Uzzi (1997) found that exchanges of fine-grained information among organizations help them all to better forecast future demands and anticipate customer preferences. More-over, Nelson (1989) who investigated intergroup relationships, supports that frequent exter-nal interactions between organizations provide a channel for dispute resolutions and avoid the accumulation of grievances and grudges, generating solidarity that exchange effective and rich information, also pointed out by Krackhardt and Hanson (1993). In addition, because the family has an exclusive network, it can build a reputation for the family and the firm (Coleman, 1988). A good reputation has several benefits when interacting with actors outside of the network, such as lower transaction costs, possible efficiencies in acquiring supplies and/or obtaining capital (Hoffman et. al. 2006).
1 Introduction
2 Problem
3 Purpose
4 Research question
5 Frame of references
5.1 Internationalisation
5.2 Definition of family firms
5.3 Family capital
5.4 Family capital influence on internationalisation
6 Method
6.1 Qualitative research
6.2 Case study
6.3 Semi-structured interviews
6.4 Data Analysis
6.5 Reliability
6.6 Validity
6.7 Limitations
6.8 Company profiles
7 Empirical findings
7.1 Family Firm A
7.2 Family firm B
7.3 Family Firm C
7.4 Family firm D
8 Analysis
8.1 Family Human capital and Internationalisation
8.2 Family Social Capital and Internationalisation
8.3 Financial Capital and Internationalisation
9 Conclusion
9.1 Family human Capital and internationalisation
9.2 Family social Capital and internationalisation
9.3 Financial Capital and internationalisation
10 Discussion
10.1 Practical Implication
10.2 Limitations
10.3 Future research
11 References
12 Appendix
GET THE COMPLETE PROJECT
