Family Business Internationalization: Challenges & Opportunities

1. Family Business Internationalization: Challenges & Opportunities Jill Thomas University of Adelaide

2. Overview • What is a family business? • The family business as a system • Internationalization • Strategies & resources • Structures & practices for growth

3. Modules • Module 1 • The family business: Unique or not? • Module 2 • The family business as an integrated system

4. Modules • Module 3 • Internationalization: Strategies and resources • Module 4 • Structures & practices for growth through internationalization

5. Case Study • Tavazo Co. • 3rd generation family business with origins in Iran • Has undergone internationalization

6. Module 1 The Family Business: Unique or Not?

7. Module Objectives • To explore what constitutes a family business & if it differs from a non-family business • To appreciate the nature of family business & its potential contribution to world economies through internationalization

8. What is a Family Business?

9. Family Business: Towards a Definition • A family business is a synthesis of: • Ownership control by two or more members of a family or a partnership of families • Family members exerting strategic influence on the management of the firm • Family relationships inside the firm • Succession within the family

10. Family Business: A Working Definition • “A family business is one where: • A family controlled dominant coalition has shaped the vision that is being pursued • The intention or behavior is potentially sustainable across generations” (Chua et al., 1999)

11. Internationalization • No universally agreed upon definition • Process of increasing involvement in international markets (Susan, 2007) • A dynamic process explained by continuous interaction of ‘state’ & ‘change’ variables (Johanson & Vahlne, 2009)

12. Evolving Academy • Long history of family businesses existing (including archaeological evidence)! • Academic fields of entrepreneurship & family business, however, are relatively new

13. Family Business & World Economies (Poza, 2010) • Constitute 80-90% of businesses in the world’s developed economies • Generate 64% of US GDP (more than 75% in other countries) • Employ 80% of US workforce (more than 85% of working population globally)

14. Family Business Examples

15. FBs Slow to Internationalize

16. Family vs. Non-Family Firm Performance • Evidence suggests a wide variation in performance of family businesses cf non-family businesses • Conflicting results due to variations in how family business is defined, location, industry etc. • Makes comparison with non-family businesses difficult

17. Family vs. Non-Family Firm Performance Cont’d • Founder-led (1st generation) firms found to have superior performance than both later generation & non-family firms • Impact of later generation (2nd & subsequent) management on performance is dependent on the era & geographic context

18. Succession • Approx. 85% of entrepreneurial & family owned businesses disappear in their first 5 years of operation • Among those that survive, only 30% are successfully transitioned to a 2nd generation • Only 12% survive to a 3rd generation

19. Succession & Internationalization • ‘Born again global’ used to describe a push by 2nd & later generations to internationalize their family businesses as a means of renewal (Kontinen & Ojala, 2010)

20. How Are Non-Family Businesses Different? • Family and non-family firms differ on: • Strategic & Organizational Dimensions • Family Influence on the Firm

21. Strategic & Organizational Dimensions • Different ownership structure • Overlap of family, ownership & management • Competitive advantage derived from interaction of family, management & ownership

22. Family Influence • Most important difference • Necessary to understand how the concerns of family members affect business decisions • Also need to understand how those decisions affect firm performance

23. Strengths of Family Business • Stable culture & values • Balance tradition with innovation • Knowledge sharing • Flexibility • Practice long term thinking & planning • Instill a ‘stewardship’ approach

24. Challenges of Family Business • Resistance to change • Managing transitions & succession • Raising capital • Emotional issues • Leadership

25. Family Influence on Internationalization • Mixed evidence (Arregle et al., 2012; Calabro et al., 2012): • Some scholars find a positive impact of family ownership on internationalization • Others argue that family-related factors have a negative impact • Finally, some scholars find no difference between internationalization practices of family vs. non-family businesses

26. Scholarly Findings (Kontinen & Ojala, 2010) • FB owner-managers maximize revenue from certain foreign markets rather than pursue several markets at once • Networking has a positive impact on the amount of internationalization knowledge among family members

27. Scholarly Findings Cont’d (Kontinen & Ojala, 2010) • Three key determinants of family business internationalization: • Level of commitment of family owners • Financial resources available • Ability to commit financial resources to develop the required capabilities (including recruitment of non-family managers to round out skill set related to internationalization)

28. Scholarly Findings Cont’d (Kontinen & Ojala, 2010) • International joint ventures between family businesses are more likely to succeed than those between a family business & a non-family business • Explained by shared values (even across cultures)which include trust, loyalty and preservation of the family

29. Reflection & Discussion • Reflect on the strengths & challenges of family businesses identified in this module and how applicable they are in your personal experience • Compare & contrast to those present in the Case Study (Tavazo Co)

30. Reflection & Discussion Cont’d • Reflect on the internationalization strategy outlined in the Tavazo Co Case Study • Which strengths of the firm will be beneficial to internationalization? • What challenges may be problematic?

31. Module 2 The Family Business As An Integrated System

32. Module Objectives • To appreciate the contributions of overlapping systems of family, ownership & the business • To appreciate the range of relationships which will be present in the family business & how these can be satisfactorily balanced and managed to facilitate growth, innovation & sustainability

33. Module Objectives Cont’d • To identify the developmental stages of the family, the business & the ownership of the business • To discuss the implications of these stages for expansion & growth

34. Systems Theory • The family business is a dynamic system of varying interactions between family, management & ownership subsystems • Individual perspectives of family & the business may differ • MAY lead to an overemphasis on one sub-system at the expense of the others

35. Systems Theory Model

36. Three Circle Model’s Range of Stakeholders(Gersick et al., 1997) • A family member who is not working in the business and has no ownership stake (may include children & in-laws) • An owner/shareholder who does not work in the business and is not a family member

37. Range of Stakeholders Cont’d • An employee, not a member of the family • An owner, not an employee but a member of the founding family • An owner working in the business but not a member of the family

38. Range of Stakeholders Cont’d • A family member working in the business, a member of the family but without any ownership • A family member, working in the business & with some ownership

39. Blurred System Boundaries • Boundaries among family, ownership & management systems may become blurred • May result in diminished problem solving ability • Difficult to determine if decisions relate to family, ownership or management issues • Where are our priorities?

40. A Balancing Act…(Carlock & Ward, 2001) • Overemphasis on the business erodes: • Family communications • Family values • Family time • Family loyalty • Family personal identification • Overemphasis on the family erodes: • Business communications • Business relations • Business performance • Business decisions • Business strategy

41. Implications • Too ‘family’ oriented • IF family owners/managers don’t delegate the management of relationships with international partners to nonfamily managers, they may suffer burnout • Too ‘business’ oriented • IF alliances are formed purely for monetary gain, the values & culture of the family may not be aligned with international partners

42. Reflection & Discussion • What are some of the indicators in the Tavazo Co case that help you appreciate the value of considering the family business to operate as a system?

43. Reflection & Discussion Cont’d • How balanced do you consider Tavazo Co to be in its current (3rd) generation of management? • Is it more business oriented? Family oriented? • Is some change of the organization necessary if future growth and increased internationalization are to be achieved?

44. Not Homogenous • ‘Family business’ is not a homogenous sector • Operate across all industries & include different levels of family ownership & involvement

45. Three Dimensional Developmental Model (Gersick et al., 1997) • Model used as a framework to explore challenges & opportunities for family businesses at different stages of development • Modeled over three axes: • Ownership • Family • Business

46. Three Dimensional Developmental Model (Gersick et al., 1997)

47. Ownership Dimension • Family business ownership over time will generally move from: Owner/founders as controlling owners Sibling partnerships Cousin consortiums

48. Challenges to Ownership Subsystem: Controlling Owner • Capital from savings and sweat equity: • Can access funds unencumbered funds from family but often emotional strings attached • Handling consequences of ownership concentration: • Need input from others as business grows • Clarity of direction but beware of dependency on single owner

49. Challenges to Ownership Subsystem: Sibling Partnership • Need to develop process for sharing control with each other • Need to define role of unemployed owners • Need to determine a process of retaining capital • Need to control potential factions in family branches

50. Challenges to Ownership Subsystem: Cousin Consortium • Managing growth & complexity of shareholder group of 3rd generation & on: • Cousin relationships may be less intense • Greater spread of interests & developmental stages • May be concentration of siblings from one branch of family • Need to distinguish management & ownership roles • Important to articulate options for withdrawal