Internationalization of Family Business: Adapting the Dominant Models

1. Internationalization of Family Business: Adapting the Dominant Models Louise Kelly

2. Internationalization of Family Business • Examine phenomenon of FB in light of two predominant theories of IB • Dunning’s ecletic paradigm • Uppsala model of internationalization

3. General Theory • Explores differences between doing business in a single country and doing business in multiple countries • Other theories include contingency theory, transaction cost economics & agency theory.

4. Dunnings Eclectic Paradigm • 1988, 1993, 1995 • Theoretical explanation for the existence of multinational enterprises (MNE)

5. Uppsala model of internationalization • Johanson and Vahine, 1977 & 1990 • Proposes a model for explaining how firms develop their international operations

6. Dunning’s Ecletic Paradigm • OLI Model • Basis for a firm’s ability to succeed in or more foreign markets is based on three factors • Organization • Location • Internalization

7. OLI Model • Organization • Characteristics of the organization, such as its strategic advantage, competitive position, size and its history • Location • The market potential and investment risk inherent in any particular foreign market • Internalization • The ability of the firm to manage non-domestic activities

8. OLI Model • MNE must have some strategic advantage which allows it to compete effectively with domestic firms • Must select countries for investment which have attractive sourcing and/or marketing environments • Must have managerial ability to coordinate operations located in foreign countries at a cost that is less than the benefit received from operating in these locations

9. OLI Model • Firms pursuing international expansion must have some form of advantage in each of these factors to overcome the costs and disadvantages inherent in competing in int’l level and as a non-domestic company in a foreign market • Theoretical basis for the existence of MNEs

10. Uppsala Model • How firms develop from domestic to international firms • Also know as stages model of internationalization • Firms go through two related processes of development

11. Stages • 1. increasing stages of sophistication in their international activities • 2. increasing levels of psychic distance between the domestic base and international locations of activities

12. Stages • Firms become more competent in their ability to engage in complex international activities over time and with experience

13. Stages • 1. No export activities • 2. exporting through independent representatives located in foreign countries • 3. establishment of sales subsidiary in foreign countries • 4. manufacturing in foreign countries

14. Stages • Stages with respect to location of their foreign activities • Initiate foreign activities in countries most similar to their home countries • Psychic distance • Difference between the market structures, cultures and governance of any two countries • Ex: US/Thailand >Thailand/South Korea

15. FB and IB Theory • FB do not necessarily follow OLI Model or Uppsala

16. Propositions • Proposition 1: Family businesses will rely more on family-based characteristics rather than strategic advantages when pursuing international business. • Proposition 2: The personal interests of family members will be a primary factor in the selection of IB locations by FB

17. Proposition • Proposition 3: FB will rely more on family-based control mechanisms for managing foreign locations than organizational governance mechanisms.

18. Agenda:Action-Centered Strategy • model that focuses on what leaders actually have to do to be effective. • Three main tasks: • Achieving the task, defining strategy • Building and maintaining the team • Developing alliances