The internationalization patterns of
family-firms compared to non-family family-firms: the
moderating effect of firm size.
Author: Mariona PeiretóTeixiné
Student nr.: 10828281
Date and version: 28
thJune 2015 / Final version
MSc. in Business Administration – International Management
Amsterdam Business School – University of Amsterdam
Supervisor: dr. Niccolò Pisani
Second reader: dr. Ilir Haxhi
Statement of Originality
This document is written by student Mariona Peiretó Teixiné who declares to take full responsibility for the contents of this document.
I declare that the text and the work presented in this document is original and that no sources other than those mentioned in the text and its references have been used in creating it.
The Faculty of Economics and Business is responsible solely for the supervision of completion of the work, not for the contents.
Abstract
Do family firms’ differ from non-family firms in their international strategy? An increasing body of literature is analysing the relationship between family ownership and internationalization strategy but no consensus has been met. The paper analyses this relationship considering the following international diversification features: scale, scope and level of commitment. To overcome the limitations of past research, firm size is introduced as a moderator on this relationship. The results suggest that family and non-family business do not differ in their level of internationality and globalization, but in their level of commitment, which is higher for family enterprises. Unexpectedly, firm size does not moderate the strategies mentioned. The hypotheses were tested using a sample of 711 companies from the six largest Western European economies.
TABLE OF CONTENTS 1.! Introduction!...!1! 2.! Literature Review!...!3! 2.1.! Family businesses!...!3! 2.2.! Internationalization strategy!...!6! 2.2.1.! Location choice!...!7!
2.2.2.! Entry mode choice!...!9!
3.! Theoretical Framework!...!12!
3.1.! Geographic scale!...!13!
3.2.! Geographic scope!...!16!
3.3.! Degree of commitment!...!18!
3.4.! Size of the firm!...!20!
4.! Methodology!...!23!
4.1.! Sample and data collection!...!23!
4.2.! Measures!...!24!
4.2.1.! Dependent variables!...!24!
4.2.2.! Independent variables!...!25!
4.2.3.! Control variables!...!25!
4.2.4.! Moderating variables!...!26!
4.3.! Analysis and results!...!26!
5.! Discussion!...!33!
5.1.! Academic relevance!...!35!
5.2.! Managerial implications!...!36!
5.3.! Limitations and future research!...!37!
6.! Conclusion!...!38!
Acknowledgements!...!41!
LIST OF FIGURES
FIGURE 1.RESEARCH MODEL. ... 22
LIST OF TABLES TABLE 1. DESCRIPTIVE STATISTICS: MEANS AND STANDARD DEVIATIONS. ... 27
TABLE 2.PEARSON CORRELATIONS: FAMILY AND NON-FAMILY FIRMS. ... 29
TABLE 3. FIRM LEVEL: REGRESSION UNDER ROBUST STANDARD ERRORS. ... 31
1. Introduction
Although international business has studied the expansion strategy of companies for a long time, relatively less emphasis has been paid to this strategy when a family is the owner of a firm (Fernández & Nieto, 2005). A growing body of literature has its focus on the family businesses’ (FBs) reluctance to internationalize compared to their non-family counterparts (NFBs) (e.g., Gómez-Mejía, Makri, & Lazarra, 2010; Zahra, 2003; Fernández & Nieto, 2005). In previous papers on the diversification strategies of FBs and NFBs, scholars have explained how internal attributes associated with the ultimate owner of the firm (whether it is a family or not) affect the degree in which firms expand abroad. However, prior research on the relationship between internationalization and family ownership does not offer consensus on the topic.
Drawing from the behavioural extension of resource-based view (RBV), agency and stewardship theory, optimistic researchers argue that family firms promote internationalization to remain competitive and assure the family legacy by exploiting the global marketplace opportunities (e.g., Calabró, Torchita, Pukall, & Mussolino, 2013). In line with this perspective, FBs have an inimitable competitive advantage due to the alignment of preferences among family members and their emotional ties to the company (Mitter, Duller, Feldbauer-Durstmüller, & Kraus, 2014). On the other side, the pessimistic scholars have defended that FBs are usually more reluctant to change and less inclined to expand their businesses due to their desire to maintain control and avoid risks (Segaro, Larimo, & Jones, 2014). FBs also hesitate in welcoming an external funder; thus, scholars usually consider FBs as limited in resources (Fernández & Nieto, 2005). Likewise, these attributes make FBs’ growth more stagnate than NFBs.
Despite the meaningful insights of published research, three major limitations characterized the analysis of the mentioned relationship. First, previous literature has looked at the features of internationalization separately: the level of internationalization, globalization and entry modes’ commitment has been assessed in detached studies. Alongside, samples that significantly differ have been used to determine the comparison between FBs and NFBs on their international strategy. The second limitation concerns the sample of companies used in prior research. Published articles have failed to include a sample of diverse-sized companies; they have mainly included small and medium companies, excluding the large ones from the sample set (Laufs & Schwens, 2014). Finally, the third limitation is related to the size of the firm. Past studies have neither mentioned nor assessed how firm size could affect the relationship of family ownership and internationalization strategy. Large companies have usually more resources and their ownership is more likely compounded of external investors than small and medium ones (Calabró, Torchita, Pukall, & Mussolino, 2013). The level of resources and external influence may affect the level of openness to foreign markets. By these means, firm size must be considered as a moderator of the relationship.
The purpose of this study is to confront these limitations, analysing the features of international strategy together, using a sample of companies differing in sizes and introducing firm size as a moderator of the relationship between family ownership and the level of these internationalization features.
This paper is structured as follows. In the first two sections, the relevant literature about FBs and international strategy is shown. They serve as a review of the attributes that differentiate FBs and NFBs and how these affect their internationalization. Furthermore, the firm size effect is developed and how it affects each of the diversification strategies. Afterwards, the hypotheses formulated in the prior sections are tested empirically. Finally,
the final reflections of the results are analysed and some managerial implications are disclosed.
2. Literature Review
The focus on family businesses and internationalization has increased these recent years. Literature compares family business (FB) to non-family business (NFB) to study the differences with respect to their internationalization process (Fernández & Nieto, 2005). Past research results are relatively contrasting; there are some authors that find a positive relation between internationalization and family ownership (e.g. Zahra, 2003; Calabró, Torchita, Pukall, & Mussolino, 2013; Carr & Bateman, 2009) whereas other scholars relate FBs to less internationalization (e.g. Gómez-Mejía, Makri, & Larraza Kintana, 2010; Fernández & Nieto, 2005; Graves & Thomas, 2008; Lin, 2012).
2.1. Family businesses
Family businesses possess some attributes different to non-family-owned businesses that define their propensity and intensity to internationalize (Calabró, Torchita, Pukall, & Mussolino, 2013). Literature identifies these differing values and incentives, and explains them by using three theories: resource-based view, agency and stewardship theory. These theories give a better understanding about what family ownership is and the goals a FB strives for.
From the resource-based view, a company has a competitive advantage when the resources and capabilities that it owns are inimitable (Barney, 1991). FBs’ resources are considered to be unique and hard to imitate due to the commitment and dedication of their family members (i.e. familiness) (Mitter, Duller, Feldbauer-Durstmüller, & Kraus, 2014). These intangible resources are: trust relationships (Zahra, 2003), family attachment (Lin, 2012) and socio-emotional wealth (SEW) (Calabró, Torchita, Pukall, & Mussolino, 2013;
Sánchez-Bueno & Usero, 2014). SEW refers to the family values, the founder’s legacy, the continuity of the family dynasty and the family identity (Sánchez-Bueno & Usero, 2014). The emotional ties with the organization makes the family more willing to sacrifice financial resources to keep the social ones (Segaro, Larimo, & Jones, 2014; Sánchez-Bueno & Usero, 2014): this decreases uncertainty as there is a feeling of stability and therefore increases employee loyalty (Carr & Bateman, 2009).
According to agency theory, principal and agent relationship is not aligned as individuals pursue different goals (Eisenhardt, 1989). FBs do not have as much information asymmetry as NFBs within the firm stakeholders (Mitter, Duller, Feldbauer-Durstmüller, & Kraus, 2014). Ownership and management are overlapping, thus there is an alignment of interests that eliminates the differing goals and promotes a long-term strategy (Lin, 2012; Tsao & Lien, 2013). So, there are not free-riding incentives within the family. In contrast, authors also state that even if this ownership-management altruistic relationship reduces the bias, there could be a decrease in efficiency due to nepotism favouring some untalented members of the family (Mitter, Duller, Feldbauer-Durstmüller, & Kraus, 2014). In some cases there is a preferential treatment and generosity for family members that works against significant resources (Sánchez-Bueno & Usero, 2014). To avoid this nepotism, FBs should soften their risk-aversion to outside managers. Managers that are not family members are more short-term oriented and suppose a threat to family control (Lin, 2012) but bring knowledge and talent to the company that family members may not have (Sánchez-Bueno & Usero, 2014). Thus, this moral hazard between outside managers and owners can be productive and efficient to a certain extent (Gómez-Mejía, Makri, & Lazarra, 2010). Moreover, another agency handicap may be between family owners and minority shareholders as the formers look more for emotional ties and the lasts have more economic goals (Sánchez-Bueno & Usero, 2014; Tsao & Lien, 2013); the family may expropriate part
of the wealth of the minority shareholders due to its priority to maintain SEW (Sánchez-Bueno & Usero, 2014).
Stewardship theory implies that actors are not motivated by individual goals (Segaro, Larimo, & Jones, 2014). In line with it, family leaders are considered loyal stewards of firm resources (Zahra, 2003). FBs have a shared family name within members and a common history, which means they share the same identity and they want to preserve the family reputation (Segaro, Larimo, & Jones, 2014). Family members aim to endure their relationships with the stakeholders and assure the future growth of the company for the upcoming generations; they want to maintain their legacy, wealth and local reputation (Lin, 2012; Sánchez-Bueno & Usero, 2014). These FBs priorities bring rigidness and reluctance to change, which makes the business miss opportunities of growth and leads to family business stagnation (Fernández & Nieto, 2005; Segaro, Larimo, & Jones, 2014). However, they may have both; a strong local competitive advantage due to their reputation, which can serve as a springboard in foreign markets (Fernández & Nieto, 2005), and an entrepreneurial spirit driven by the aim to promote company growth (Mitter, Duller, Feldbauer-Durstmüller, & Kraus, 2014). In line with these theories, FBs have some attributes that are more favourable than others to promote internationalization (Banalieva & Eddleston, 2011).
Conversely, other authors assess family ownership and internationalization as an antagonistic relation. The higher the level of family ownership, the higher the risk aversion a family has to the internationalization opportunity (Calabró, Torchita, Pukall, & Mussolino, 2013). This risk aversion is related to the need of outsiders to fund and to manage the operation (Gómez-Mejía, Makri, & Lazarra, 2010). FBs are less willing to receive external funding because it means giving more power to outside shareholders and thus increase the uncertainty and delegation as well as decrease centralization decision-making (Sánchez-Bueno & Usero, 2014); the same perception can be applied to outside managers
(Gómez-Mejía, Makri, & Lazarra, 2010). This perception of losing control increases the fear of failure to preserve family wealth and to divert the business from its original mission. Despite this FBs’ reluctance to internationalization, foreign expansion brings an attractive opportunity of growth to FBs and allows the firm to become more competitive in both the domestic and global market (Calabró, Torchita, Pukall, & Mussolino, 2013).
2.2. Internationalization strategy
When FBs decide to go abroad, they are seeking out opportunities for value creation and growth (Lin, 2012; Graves & Thomas, 2008). Foreign expansion carries new resources, capital and knowledge; family firms can therefore obtain new processes and practices, which help to reduce the variation in revenue and the increase in risk (Lin, 2012). So, the perception of risk is alleviated by the imminent opportunities of the global market (Zahra, 2003). In addition to this, the long-term focus of the FBs causes the need of global survival because the barriers to internationalize decrease and thus competitors are more likely to enter the local market (Lin, 2012; Tsao & Lien, 2013). By these means, the largest family firms, especially listed ones, will be more willing to implement an international strategy as they have more resources at their disposal due to their external influence and broad network (Sánchez-Bueno & Usero, 2014; Laufs & Schwens, 2014). But the intensity with which FBs internationalise may differ to that of NFBs.
When doing business abroad companies have to take two crucial strategic decisions: where and how. The former refers to the variety of locations where the business will establish its international activities in terms of geographic scale (i.e. whether companies are more international on their locations) and geographic scope (i.e. whether they follow a global or regional strategy) (Vermeulen & Barkema, 2002); and the latter is related to the level of commitment to the foreign market (i.e. foreign entry modes choice) (Laufs & Schwens, 2014). As stated in the lines above, FBs have specific characteristics that together with the
environmental factors lead to a different intensity in their international operations in terms of both geographic diversity and resource commitment (Gómez-Mejía, Makri, & Lazarra, 2010).
2.2.1. Location choice
Globalisation has affected how companies make decisions and carry out business abroad, mainly through changes in policy, improvement in transportation and communication (Buckley & Casson, 2009). The relaxation of borders by reducing exchange controls and deregulation favours capital flows, so it is easier to borrow in one country and invest the money in another (Buckley & Casson, 2009). This affects both FBs and NFBs regarding their international strategies; risk and uncertainty decrease in response to the strengthening of property rights and the spread of manufacturing standards (Buckley & Casson, 2009). So, liability of foreignness (LOF) (i.e. additional costs that the firms have when going abroad compared to the locals) also decreases just as the distance between these: the home and the host country (Berry, Guillén, & Zhou, 2010). As mentioned by Ghemawat (2003), the world is becoming more globalized but it is still far from perfect integration of activities across countries. Company operations are somewhere in between being completely isolated and being fully integrated, which is called semi-globalization. Companies took advantage of the relaxation of borders to leverage their businesses but they still have some attributes that are location-specific (Ghemawat, 2003). Businesses must evaluate to which extent their location specific attributes can be adjusted to different countries. Cross-country differences must be taken into account when doing business abroad and deciding where to locate the activities. These differences, such as exchange rate or political risk, affect the location dimension of international strategy (Dunning, 2000).
External variables that firms cannot control characterize the distance between countries and influence their location choices. Distance implies the extent to which countries
differ from each other (Berry, Guillén, & Zhou, 2010). Countries diverge in a rich diversity of ways that is why distance is considered as a multidimensional concept (Ghemawat, 2001). There are many external factors involving the international expansion of firms such as economic, political, social, cultural and institutional, to mention a few (Makino, Takehiko, & Chan, 2004), and all of them vary according to each country. These external variables together with FBs attributes, such as risk-aversion, make family firms tend to internationalize to countries that are closer culturally in order to avoid part of the distance setbacks (Banalieva & Eddleston, 2011; Chung, 2014). According to Chung (2014), FBs choose nearby locations to their home region.
All else equal, FBs tend to internationalize later and slower than NFBs and they do it in a risk-avoiding manner, which means that their expansion is sequential geographically and culturally (Mitter, Duller, Feldbauer-Durstmüller, & Kraus, 2014). This incremental internationalization depends on their propensity to adapt to their external environment (Segaro, Larimo, & Jones, 2014) and on their will to minimize risk (Calabró, Torchita, Pukall, & Mussolino, 2013; Sánchez-Bueno & Usero, 2014). By expanding from nearby countries to more distant ones, firms learn from the environment and receive knowledge on how to overcome the LOF (Rugman, Verbeke, & Nguyen, 2011). Although firms learn how to surpass the costs of doing business abroad, they still tend to remain mainly less international and regional instead of totally diversified and global (Chung, 2014), especially FBs which stick to known markets so their geographic scope is not as diversified. Literature supports different patterns of internationalization between countries (Carr & Bateman, 2009), but FBs usually follow a regional strategy rather than a global one (Chung, 2014; Banalieva & Eddleston, 2011). However, keeping a semi-global strategy allows the companies reaching a two-sided benefit to some extent; they can enjoy the advantages of being international and
they can avoid the potential disproportionate LOF due to the large scale and scope (Banalieva & Eddleston, 2011).
2.2.2. Entry mode choice
Once companies decide where to expand the business, owners must decide how they proceed in establishing activities abroad. Firms can enter a market by choosing different entry modes according to the degree of risk exposure, resource commitment, profit return and control (Pan & Tse, 2000). Entry modes can be classified in two: equity and non-equity (Pan & Tse, 2000). In each classification there are different levels of commitment from higher to lower: the former can be split into wholly owned subsidiaries or joint ventures and the last into contractual agreements and exports (Pan & Tse, 2000). Foreign market entry mode choice implies taking a risk in the international environment, the level of risk exposure is linked with the amount of resources invested as if the engagement fails; the company loses them (Laufs & Schwens, 2014). Therefore, entry mode is a vital strategic decision: if it is chosen wrongly, it can have a negative impact in the performance (Lu & Beamish, 2004).
In line with their attributes, FBs and NFBs adopt different entry modes. Family-owned firms compared to NFBs are still more risk-averse because the family wealth can be reduced or lost (Sánchez-Bueno & Usero, 2014). Family firms are more inward oriented and they do not expand to foreign market till they consolidate their domestic position (Segaro, Larimo, & Jones, 2014). As mentioned before, listed firms will have more external influence and are more willing to welcome external managers in order to take profit of their knowledge. This upgrading flexibility within the management team encourages more the outward orientation of the firm (Segaro, Larimo, & Jones, 2014). But FBs’ outward orientation is not as aggressive as NFBs’ strategy can be (Carr & Bateman, 2009). Families prefer to expand in a traditional pathway meaning that they gradually increase the level of international commitment by stages (Graves & Thomas, 2008); following progressive steps
from exports to foreign direct investment or according to the psychic distance, which is the perceived foreignness due to differences in language, education and culture (Rugman, Verbeke, & Nguyen, 2011; Graves & Thomas, 2008; Johanson & Vahlne, 1977). By internationalizing traditionally, FBs learn how to deal with the risk abroad and how to keep the control over their international activities (Laufs & Schwens, 2014). FBs are also less willing to cooperate jointly with other companies (Laufs & Schwens, 2014) as family members have the feeling that if they share control with a partner they lose part of their discretional decision taking (Fernández & Nieto, 2005). Contrary to it, one could expect that FBs will commit in a higher level of resources once they decide to operate abroad due to their need of control (Kuo, Kao, & Chang, 2012). It can also be that they take advantage of the attachment that domestic FBs might have to other business families from other countries; FBs tend to stick together and help each other by creating a large and tied international network that can reduce the entry barriers in the foreign market as well as the risk perception (Zahra, 2003).
FBs’ peculiar characteristics affect the strategy they implement as already mentioned. But there is another important variable that must be taken into account to analyse the international expansion of FBs and NFBs, which is the size of the firm (Laufs & Schwens, 2014). MNEs do not have the same characteristics as small and medium enterprises (SMEs) (Laufs & Schwens, 2014; Lin, 2012); SMEs have more limited financial and personal resources and most of them are family-owned. As many SMEs are family-owned and owner-managed; this is the reason why most of the studies considering FBs did not take MNEs but SMEs (Laufs & Schwens, 2014). Larger companies have more resources and, in case they are listed, they receive more external influence from investors: they are about to implement an international strategy more intensively than the SMEs (Laufs & Schwens, 2014). The same applies for FBs that want to be competitive in the long-term (Fernández & Nieto, 2005).
Conforming to the lines above, large companies already show their will to expand by becoming public (Sánchez-Bueno & Usero, 2014). Hence, listed FBs are more likely to receive external managers and shareholders who can provide a better comprehension of international markets and can serve as strategic partners as well (Gómez-Mejía, Makri, & Lazarra, 2010; Calabró, Torchita, Pukall, & Mussolino, 2013). This kind of companies usually has the same structure in terms of ownership: either one or two families own the largest amount of shares or a financial company is the second largest shareholder (Sánchez-Bueno & Usero, 2014). In any of the cases, the involvement of one or two families results in the preference of the SEW rather than the economic goals. The last type is more willing to acquire debt to expand their operations; it builds a long-term relationship with the financial institution by including members of the institution in its board of directors (Sánchez-Bueno & Usero, 2014). Lending institutions also help to reduce the asymmetry between the family and outside managers and minority shareholders as these members are well informed about the strategy of the firm (Sánchez-Bueno & Usero, 2014). The level of ownership heterogeneity within the company relates to the size of the firm, so does the size of the firm with the level of internationalization (Lin, 2012).
To sum up, different studies analyse FBs’ international strategy compared to NFBs as a result of their internal attributes (e.g.Tsao & Lien, 2013; Zahra, 2003; Mitter, Duller, Feldbauer-Durstmüller, & Kraus, 2014; Gómez-Mejía, Makri, & Larraza Kintana, 2010). However, most of them overlooked FBs overall international strategy in terms of scale, scope, entry mode choice and how family size moderates the relationship between family ownership and these variables. The question that arises is: how international strategy differs between FBs and NFBs in terms of scale, scope and level of commitment? Does firm size moderate this relationship? The aim of this research is to define the relationship between FBs and their level of international operations compared to NFBs and the impact that firm size has
on the relationship. The study analyses whether FBs versus NFBs tend to have a more local and regional focus and whether they engage in higher or lower levels of foreign direct investment. Assuming the heterogeneity of businesses internal factors, the paper focuses on how firm size can moderate the international strategy intensity in scale, scope and level of commitment related to family ownership.
By answering these questions, this study contributes to the existing literature on international expansion and family firms providing two new insights. First, it takes into account the largest companies instead of SMEs. Second, it integrates the concepts of scale, scope and entry modes with the size of the firm as a moderating effect. Thus, the outcome is the relationship between the largest FBs and NFBs and their most likely entry modes and geographic decisions. Large businesses are expected to have more external influence in their ownership structures. Therefore, the paper introduces the moderating effect of firm size to better analyse how companies perceive international strategy. Other scholars have already mentioned the importance of studying the differing geographic patterns and entry modes commitment according to firm size (Sánchez-Bueno & Usero, 2014) between FBs and NFBs.
3. Theoretical Framework
Recently, there has been an increasing stream of studies on international diversification strategy and entry modes choice in family firms versus non-family firms (e.g. Graves & Thomas, 2008; Gómez-Mejía, Makri, & Lazarra, 2010; Fernández & Nieto, 2005; Kuo, Kao, & Chang, 2012) but they overlook the factor of size, which can affect positively or negatively internationalization. Family firms are not homogenous, they share some genuine attributes but they also have heterogeneous features between them that either favor or limit their international presence (Pukall & Calabrò, 2014; Sánchez-Bueno & Usero, 2014).
In this section, the intention is two-fold. First, the aim is to understand how the international strategy of FBs in terms of scale (i.e. the level of internationalization, where companies locate their activities), scope (i.e. international diversification, whether companies are global or regional) and entry modes (i.e. level of commitment in their entry modes choice) differ from NFBs. Second, the purpose is whether and how the size of the firm affects the relationship between internationalization and family ownership.
Three theories highlight the differences between FBs and NFBs: RBV, agency and stewardship theory. In the following paragraphs, I hypothesize these two parts in terms of scale, scope and commitment and the moderating effect that firm size makes on the relationship using the already explained and mentioned theories.
3.1. Geographic scale
The decision of how much international activity a firm must undertake is part of a decision process (Benito & Gripsrud, 1992). Within this process, they seek for arbitrage opportunities that allow them exploiting market imperfections and increasing global market knowledge (Lu & Beamish, 2004; Ghemawat, 2008). Firms consider to locate their activities according to the opportunities of arbitrage in each country in terms of labor, capital and taxes, to mention a few (Ghemawat, 2008). These differing characteristics between countries can provide with chances of value creation to companies (Ghemawat, 2008); companies may see a potential benefit in arbitrage therefore they decide to operate internationally. Despite the abovementioned potential arbitrage, internationalization comes with uncertainty as these differences between countries can be translated to costs till some extent (Lu & Beamish, 2004; Benito & Gripsrud, 1992). Differences between countries imply distance between them and affect the international behavior of enterprises. Thus, the characteristics of each country matter for the foreign location choice (Makino, Takehiko, & Chan, 2004).
Firms must cope with costs when doing business abroad (Lu & Beamish, 2004). These costs are known as the liability of newness (i.e. initial costs due to lack of expertise) and liability of foreigness (Lu & Beamish, 2004). Companies can soften these costs by engaging with international activities (Lu & Beamish, 2004; Gaba, Pan, & Ungson, 2002). The more experience a firm has, the more the improvement on its learning curve and the higher the readiness to overcome international market setbacks. Thus, internationalization is a learning-by-doing process in which companies learn how to bear differences between countries (Ghemawat, 2001).
Cross-country differences set the distance between countries. As mentioned before, distance is a multidimensional concept. The framework exposed by Ghemawat (2001) divides the concept in four dimensions: cultural, administrative, geographic and economic. It is called the CAGE framework and it serves as a fair overview of the concept of distance but it does not take int account all its complexities (Benito & Gripsrud, 1992). All kinds of distance should be considered when doing business abroad because all create difficulties on international operations and make these operations uncertain, risky and difficult (Benito & Gripsrud, 1992; Ghemawat, 2008). First, companies do not have the knowledge of how a particular country works and they need to learn how to run a business in an uncertain environment (Benito & Gripsrud, 1992). Second, there are institutional hazards (e.g. a lack of credibility in institutions or a weak political structure) that companies need to encompass. There are country-specific characteristics (e.g political and economical) that increase the distance between home and host country, so does the risk (Feinberg & Gupta, 2009). Finally, firms need to develop organizational capacity to build up competitiveness in the global market and this need to fit to the host-country modus operandi (Ghemawat, 2008). The complexity of the operations therefore escalates to a further level in both terms internal and external (Buckley & Casson, 2009).
As mentioned before, FBs and NFBs have knowledge boundaries about the countries they will to operate in, these boundaries must be overcome when companies want to internationalize (Benito & Gripsrud, 1992). However, both face distance differently due their geuine attributes. FBs see in internationalization as the opportunity to grow as NFBs but their drivers differ. FBs have a commitment focused on the long-term, they want to assure a future to the upcoming generations of the family (Calabró, Torchita, Pukall, & Mussolino, 2013). This first driver to internationalize is reduced by the fear that an agressive international strategy could reduce their limited resources and capabilities (Lin, 2012; Fernández & Nieto, 2005), which are directly linked to the family wealth (Zahra, 2003). Family members feel more attached to the business and care more of its operations as their resources are at stake (Zahra, 2003). Yet, their financial wealth is not their first priority. Compared to NFBs, FBs are more willing to forego financial resources rather than their reputation and legacy (i.e. SEW) (Segaro, Larimo, & Jones, 2014; Sánchez-Bueno & Usero, 2014). Their internationalization manner is more judicious and prudent than that of NFBs.
By expanding abroad, internal organization of the company also becomes more complex (Ghemawat, 2008). The organizational complexity creates an out-of-control perception to the FBs; FBs feel identified with the firm and they desire to control risks as a way to protect family members and the SEW (Lin, 2012). FBs are characterized by the trust-based relationships with their stakeholders, which are part of their competitive advantage. In order to preserve and exploit this firm-specific advantage (FSA), FBs may prefer to maintain international relations with countries that are closer. FBs can manage better their competitive advatange in nearby countries; it is easier for them to build up loyal relationships with stakeholders and institutions that are more similar (Lin, 2012). The creation of loyal networks brings FBs the perception of less hazards opportunities (Carr & Bateman, 2009). The
development of these networks and trust-worthy enviroment is slow-paced compared to that of NFBs (Carr & Bateman, 2009).
The risk-avoiding predisposition of FBs compared to NFBs make family-owned enterprises internationalize slower. FBs pursue opportunities within their comfort zone; that is countries that are more similiar to the home-country (Banalieva & Eddleston, 2011). Thus, family-owned firms interntionalize in a more cautious and slower manner than NFBs and they tend to do it in closer countries. FBs’ level of international activity (i.e. activities out of the home country) will be lower than NFBs due to their genuine attributes of risk-aversion, SEW and long-term commitment. By these means, the following hypothesis arise:
Hypothesis 1. Family-owned businesses are less international than non-family businesses.
3.2. Geographic scope
Businesses operate in a globalized world. Globalization provides domestic markets with new external influences and facilitates the entrance of new competitors (Buckley & Casson, 2009). The relaxation of borders promotes the cross-country migration of companies (Buckley & Casson, 2009) and turns the environment in a more competitive one (Tsao & Lien, 2013). Companies must become international to maintain their competitive advantage in a global level; internationalization becomes a strategic option for survival on both FBs and NFBs (Calabró, Torchita, Pukall, & Mussolino, 2013). By spreading investments in different locations, companies can diversify and reduce risk (Banalieva & Eddleston, 2011). Geographic expansion brings knowledge and fluctuations advantages: companies expose themselves to new pools of knowledge as well as they can exploit opportunities that come from different markets dynamics (Banalieva & Eddleston, 2011).
Both FBs and NFBs strive to survive in the market and even to become front-leading companies worldwide, but their preferences in how to achieve it might differ (Fernández &
Nieto, 2005). Their genuine attributes influence their internationalization decisions, especially FBs that his main goal is not all about having a good financial performance (Zahra, 2003; Gómez-Mejía, Makri, & Lazarra, 2010). As mentioned before, FBs have the same survival need as NFBs. But FBs are more long-term focused (Calabró, Torchita, Pukall, & Mussolino, 2013); they want to protect the future of upcoming generations from aggressive competitors (Lin, 2012) so they develop an entrepreneurial drive to become more competitive in the new environment (Fernández & Nieto, 2005). When FBs take the decision to internationalize they have a strong competitive advantage to NFBs: there is an alignment of interests between managers and owners due to the family attachment and the trust relationships built within the company (Lin, 2012; Zahra, 2003). This “familiness” may partly mitigate the increase of complexity and transaction costs of the internationalization strategy (Mitter, Duller, Feldbauer-Durstmüller, & Kraus, 2014). Furthermore, the largest FBs have enough resources and capabilities to become international, especially if they are publicly traded due to the influence of external investors (Sánchez-Bueno & Usero, 2014). So, FBs do internationalize but they may become international in a slower path and in a risk-avoiding manner.
Even if FBs want to expand their business internationally, they do it in a more cautious way than NFBs (Fernández & Nieto, 2005; Graves & Thomas, 2008). Large FBs might have enough resources and capabilities to internationalize but they are still more risk-averse than NFBs (Calabró, Torchita, Pukall, & Mussolino, 2013). The decision of doing business abroad does not only affect the financial performance of the company but the family wealth (Calabró, Torchita, Pukall, & Mussolino, 2013). They know that they must internationalize to remain competitive in the long-term and to reduce the dependence on a singular revenue generator (Graves & Thomas, 2008) but they must keep in mind that an aggressive investment can also be risky for the sub-sequent generations. They are more
willing to reduce financial performance in favor of social wealth (Tsao & Lien, 2013). Becoming highly internationalized requires external managers and in some cases external shareholders. Family members perceive the risk of losing control of the company and its activities due to the potential opportunism of these newcomers (Gómez-Mejía, Makri, & Lazarra, 2010).FBs prefer to diversify per stages as they can learn how to overcome the incremental complexity of expanding their business (Mitter, Duller, Feldbauer-Durstmüller, & Kraus, 2014). By expanding step-by-step, starting from nearby countries to further ones, FBs gain trust on the environment and reduce the risk perception (Benito & Gripsrud, 1992). Hence, the reluctance to rapid change and the conservative way to expanding business (Zahra, 2003) makes FBs become international but not as much as NFBs. FBs are more regional-focused than NFBs due to their genuine characteristics such as risk-aversion, legacy heritage and controlling behavior. The preceding arguments bring the following hypothesis:
Hypothesis 2. Family businesses are more regional than non-family businesses.
3.3. Degree of commitment
MNEs must take an important strategic decision when they decide to go cross borders: they must choose the optimal entry-mode in the foreign market (Pan & Tse, 2000). According to Pan and Tse (2000), a wrong entry-mode choice may damage the international performance of the firm. The level of commitment depends on the shares a parent company owns in a subsidiary; it is usually calculated as a percentage of the total shares. There are different ownership ranges that define entry modes: if the corporation owns between 0 or 50 % of the affiliate is considered a joint venture (JV), a rate of shares higher than 50% is considered a majority owned subsidiary and an extreme of 100% ownership over the affiliate is a wholly owned subsidiaries (WOS).
Joint ventures consist of a partnership with another company or investor to run the business in the foreign country. A JV is a good option when the foreign environment is
unknown and the help of a more experienced individual or company helps to overcome the foreignness in the host country. By contrast, a majority owned subsidiary as well as a WOS imply a higher level of commitment in terms of resources. The higher the level of ownership, the more the control the firm has on the subsidiary. The risk of opportunism decreases though since there are no partners involved in the operations. However, majority owned subsidiaries come with high administration costs as the company faces all the difficulties of adaptation in the host country by itself.
FBs and NFBs differ in their entry-mode choices. FBs prefer less risky options in terms of opportunism, control and long-term orientation (Pukall & Calabrò, 2014). As mentioned above, FBs are more risk averse than NFBs and they have a stronger long-term orientation (Lin, 2012; Tsao & Lien, 2013). Less commitment in entry- mode choices allows family-owned companies to better preserve family wealth (Laufs & Schwens, 2014; Kuo, Kao, & Chang, 2012): the investment is lower so the risk of losing the invested resources in case of failure decreases (Lu & Beamish, 2004; Laufs & Schwens, 2014). JV also requires less administration costs, which the family business usually faces by contributing with its family funds (Kuo, Kao, & Chang, 2012). By entering through a JV, FBs can mitigate the perception of foreignness, as the partner company supposedly has a higher knowledge (Kuo, Kao, & Chang, 2012). However, a JV might not be the optimal choice according to large FBs resources and preferences; it implies having an agreement with an external partner and thus decreasing the control of the family members.
FBs have enough resources and capabilities to bear a WOS. FBs prefer to keep social and family ties rather than financial ones. Thus, FBs prefer to safeguard their business from outsiders as external managers and partners may be a threat to retain the SEW (Kuo, Kao, & Chang, 2012). FBs value more having control over their business than the risk of a potential economic loss (Kuo, Kao, & Chang, 2012), so the risk exposure of a WOS decreases due to
the high valuation of control and long-term investment. According to Kao et al. (2012), FBs would rather use their family network in the subsidiaries than hiring outside managers. FBs followed an incremental international strategy, which means that they increase the level of commitment step by step from non-equity modes to equity-modes (Graves & Thomas, 2008). By these means, FBs should internationalize by first exporting, then joint ventures and finally WOS. Nevertheless, when FBs decide to step up from non-equity to equity modes, their preferences may change: they are willing to face some risk more than others, especially large firms. As introduced before, large FBs have enough resources and capabilities to deal with the investment of WOS. FBs due to their risk-aversion characteristic will make sure they know the market they are about to invest before proceeding with the operation. Large FBs may see a JV as a source of opportunism and uncertainty (Kuo, Kao, & Chang, 2012). The uncertainty arises from the need to rekindle the contract with the partner and the lack of sequential interactions (Laufs & Schwens, 2014). Thus, FBs may prefer to enter the market by highly committing their resources. This high scale of commitment is compensated by the assurance of a long-term term investment and the control retention. Therefore:
Hypothesis 3. Family-owned businesses are more likely to choose a high level of commitment in their equity-entry mode choice compared to non-family businesses.
3.4. Size of the firm
The effect of the firm’s size on the relationship between the degree of internationalization and family ownership has been usually overlooked. Firm’s size may be related to the ownership heterogeneity and the level of openness to internationalize. Larger firms already show their interest to grow, being this more obvious if they become public. Internationalizing is a signal of looking for growth opportunities but firms need resources (Gómez-Mejía, Makri, & Lazarra, 2010). A firm can decide whether it uses internal resources or seeks for external ones. There are multinational firms that are fully owned by a family, but this is not
the most common case among MNEs (Laufs & Schwens, 2014). Both FBs and NFBs may be publicly traded and/or have external shareholders that may affect the strategy decisions of the business (Sánchez-Bueno & Usero, 2014; Gómez-Mejía, Makri, & Lazarra, 2010). The larger a company is, the more likely this company is to receive external influence.
External investors can provide the expertise of foreign business and a faster identification of international opportunities (Gómez-Mejía, Makri, & Lazarra, 2010). Outside investors serve as a source of information and know-how of the foreign market that reduce the uncertainty and the risk perception of the family firm till some extent. Outsiders that have experience of internationalizing increase the openness of the company and may encourage hiring external personnel that can better oversee the entry into foreign markets (Calabró, Torchita, Pukall, & Mussolino, 2013). Outsiders may also offer a more spread international network than the one of the family (Segaro, Larimo, & Jones, 2014). These above mentioned factors reduce the risk of the operation so FBs may engage in international expansion more confidently than by doing it by themselves. Therefore, if outside shareholders have experience of international markets they can influence it in favor of the internationalization of FBs.
Besides the need of expertise, when firms take the decision of expanding their operations they need resources. Internal resources are not usually enough to expand the business - whether the expansion is international or not, then firms usually ask for external resources. One way to obtain more funding is by attracting investors and incurring debt (Sánchez-Bueno & Usero, 2014). Both investors and financial institutions can provide the capital that MNEs are looking for by becoming shareholders. These individuals are aware of the international environment that the FB must deal with but also have a role in the company: they may be part of the board of directors. Thus, they are well informed of both: the firm’s strategy and the global market. Businesses should trust the investors’ and even more financial
institutions’ criteria. This is as they are likely to know the bank would not provide the debt or would not become a shareholder under risk of failure.
Larger firms are more likely to engage with outsiders pursuing resources and expertise. The expertise of external agents may positively affect the relationship between family ownership and international scale and scope. The more knowledge about the international marketplace, the less uncertainty family members relate to internationalization. Alongside, the presence of outsiders in the company makes the firms more willing to take the risk of a partnership when investing abroad. Family members are already used to interacting with external agents; their fear to a potential moral hazard diminishes. Hence, firms’ size is believed to moderate the relationship between family ownership and international diversification and commitment:
Hypothesis 4a. The size of the firm negatively moderates the relationship hypothesized in H1.
Hypothesis 4b. The size of the firm negatively moderates the relationship hypothesized in H2.
Hypothesis 4c. The size of the firm negatively moderates the relationship hypothesized in H3.
4. Methodology
4.1. Sample and data collection
This paper aims to examine the differences in international strategy between FBs and NFBs in terms of scale, scope and foreign level of commitment. It also analyses the moderating effect that the firm size causes on these relationships. The hypotheses are tested using a sample of 711 companies, which 156 of them are family-owned and the rest are non-family owned. The sample for this study contains cross-sectional secondary data from six EU countries: Italy, the Netherlands, Germany, France, United Kingdom and Spain. The information was obtained from different sources: the ORBIS database (Bureau van Dijk), which provides information about public and private companies, the companies ‘annual reports and additional sources (e.g. Bloomberg) to find whether the company was publicly traded. In addition to the financial information such as income statements, ratios, balance sheets, and international sales: it also comprises a vast range of complementary information such as affiliate and shareholders information.
The database was constructed using the Fortune Global 500 companies and the following 100 largest companies for each of the six countries. The data regarding scale and scope of internationalization were gathered from the annual reports. The sample covers relevant firms from all sectors that differ considerably in size, thus giving the chance to identify the impact of size as a moderating effect.
The data collected was divided in two datasets according to the level of study: firm level and affiliate level. At the firm level, information about the overall company is found such as: the financial accounts and location choice information for each company. A total of 711 companies are taken. At the affiliate level, all former firms’ subsidiaries are listed with their respective information: the shares that the parent firm owns and other financial information about the subsidiary itself. A total of 114.290 subsidiaries are included in the
analysis. It is important to underline that the hypothesis are tested in line with these two different levels of analysis: firm-level analysis is suitable for evaluating the scale and scope of internationalisation hypotheses and the affiliate-level analysis is undertaken for examining the hypotheses related to the foreign level of commitment (i.e. the stakes that the parent company owns).
4.2. Measures
4.2.1. Dependent variables
Scale of internationalization. The level of activity carried in foreign countries is measured as the volume of sales generated abroad as a percentage of the total turnover (Zahra, 2003). The total turnover is obtained from the ORBIS database while the foreign sales are provided by the annual reports.
Scope of internationalization. The level of international diversification in terms of geographic location is the percentage of global sales (Banalieva & Eddleston, 2011). The percentage of total sales is obtained by subtracting regional sales from 1 (i.e. 1- regional sales = global sales). The data obtained on the annual reports consider the region as the continent where the home-company is operating. Therefore, global sales are the turnover coming from abroad the continent.
Level of commitment. The level of commitment in the subsidiary level is analysed using the percentage of total stake that the firm owns of the subsidiary. Other studies have implemented a dummy variable to differentiate between WOS and JV (Kuo, Kao, & Chang, 2012), however this paper uses the percentage to better show the differences along the continuum.
4.2.2. Independent variables
Family-owned business. A dichotomous variable describes the owner of each firm whether it is family-owned or not (Gómez-Mejía, Makri, & Lazarra, 2010). The variable takes the value of 1 if the ultimate owner of the company is a family. The firms coded as 0 are the ones that do not meet this criterion; they are considered non-family owned. The ORBIS database provides with this information.
4.2.3. Control variables
Firm age. This variable acknowledges the years a company has been operating. It is the number of years since a firm’s year of incorporation (Sánchez-Bueno & Usero, 2014).The values are standardized to facilitate the interpretation. Established firms are expected to gather more information about the international market (Lin, 2012), the accumulated information over the years affects the location choice (Chung, 2013).
Internal funds. The money that a firm raises from within the firm is measured with the level of profits after tax (i.e. the net income). Family firms are more likely to consider firm’s internal funds as their own wealth, which affect their propensity to internationalize (Segaro, Larimo, & Jones, 2014). The values are standardized.
Sector. A dummy variable is created to identify the industry type of each firm according to SIC codification. ORBIS database provided with the three SIC digits, which indicate the industry type; this paper classifies them within two economic sectors. It assembles companies that operate in the primary and secondary sector in one group and services in another group. The classification originates from the concept that primary and secondary sector are more capital intense than services one; the level of resources a company need affects a firm’s decisions as well as its performance, thus it affects the internationalization choice (Chung, 2013). Thus, a dummy variable takes 1 if it is in the primary or secondary sector and 0 otherwise.
Public company. A dummy variable coded as 1 if the company is listed in the stock market or 0 if it is private. A company with exposure to external stakeholders is more likely to receive more information flows about the international marketplace and it is easier to access to the necessary resources to initiate international operations (Sánchez-Bueno & Usero, 2014). Performance. The study uses ROA as a measure of financial performance. ROA shows how well managed are the assets of a company to generate profit (Tsao & Lien, 2013). It gives an idea of how profitable a company is regarding its assets. The values are standardized.
4.2.4. Moderating variables
Firm size. This paper controls for firm size as the number of employees a company has. Although the sample contemplates the largest companies from the six countries mentioned above, there are differences on firm size among the sample. This difference in firm size among the observations may help to explain the impact of this variable on international diversification strategy, an effect that was ambiguous till now (Tsao & Lien, 2013). Firm size is a two-way interaction; it is expected to moderate the relationship of the independent variable and the dependent one. The values of firm size are standardized.
4.3. Analysis and results
The comparison of FBs and NFBs reveal differences between these groups (e.g. Carr & Bateman, 2009; Lin, 2012; Zahra, 2003). Table 1 shows the differences and similarities of these two groups with regard to firm characteristics. The undertaking of means comparisons t-tests reports that FBs and NFBs do not significantly differ in terms of international sales, sector, firm size and both the direct and total share in the affilliates. However, they do significantly differ in all the other variables.
The descriptive statistics suggest that on average FBs are ten points more international as well as five points more global than NFBs. The average level of internationalization of
FBs is 0.64 and NFBs is 0.55. With regards to the scope, FBs have a level of 0.45 of global sales while NFBs only sell 0.40 of their sales out of their home region. FBs are younger than NFBs in average; FBs’ age is 0.13 standard deviations under the mean compared to NFBs’ 0.04 points above the mean. Additionally, FBs have better performance in terms of return to assets; FBs’ ROA (i.e. ROA’s zscore) is 0.29 in average compare to NFBs’ one which is -0.08. The means reveal that FBs have fewer employees in average than NFBs and they are less publicly traded. Moreover, data shows that FBs raise in average less money from within the company compared to NFBs. Regarding the shares that the continuum have in their affiliates, means tell that FBs directly own 76% of the subsidiary in average whereas NFBs’ direct stake is 70%. The difference is more pronounced when the level of total stake in the subsidiary is considered; FBs own 88% compared to NFBs 57% of total stake in average.
In addition, Table 2 displays the correlations between all the independent, dependent, and control and moderating variables. The level of the correlation coefficients among the predictors are low, they are not worrisome. Just a strong relationship is found between international and regional sales, as expected. These two variables entitle similar concepts and thus they have a 0.78 of correlation coefficient between them, this does not affect the analysis though because they are used in different models. To be mentioned that most of the correlations are significant at different levels of significance. Possible collinearity is checked
using the VIF test (i.e. variance inflation factors estimation). All values are comprised between 1 and 1.2 and the tolerance values are much higher than 0.1, thus demonstrating that there is not a problem of multicollinearity in the study.
The hypotheses are tested via OLS robust regression. STATA was used to run the regressions as it allows using robust standard errors. A total of eight models are tested in this paper. Model 1 and 2 test the first two hypotheses. Model 3 and 4 test the third hypothesis considering two different dependent variables: total stake in the subsidiary and direct stake, respectively. Model 5 to 8 explain the moderating effect of firm size with the interaction of the independent variable: family ownership.
Hypothesis 1 is tested using the percentage of international sales as the dependent variable and the dummy variable of family ownership as the independent one. The model has an F score of 7.66 (df1=6, df2=277) and a significance level of 0.000, thus being altogether significant. The relationship between family ownership and international sales is negative (B=-0.0015, p=0.976). Based on the p-value the difference between FBs and NFBs in the relationship of international scale is not statistically significant. There is no evidence that FBs and NFBs follow a different approach in becoming more or less international.
Model 2 tests the relationship between family ownership and the percentage of global sales; being global sales the dependent variable and family ownership the independent one. The model is statistically significant as a whole with an F score of 13.63 (df1=6, df2=288) and a p-value of 0.000. However, the positive relationship explaining the differences between FBs and NFBs (B=-0.0223, p=0.582) in terms of global sales is not statistically significant. The study does not bring confirmation for hypothesis 2.
Model 3 and 4 test the difference between FBs and NFBs in the level of commitment at the affiliate level. Model 3 takes into account the percentage of direct stake that the parent company has in the subsidiary as the independent variable and family ownership as the dependent one. The same applies to Model 4 but using the percentage of total stake instead. Both models 3 and 4 are statistically significant as a whole with an F score of 227.69 (df1=6, df2=32652) and 9126.40 (df1=6, df2=78226) respectively and both have a p-value of 0.000. The relationship between family ownership and direct stake is positive (B=5.9529, p=0.000) and based on the p-value is statistically significant at all levels. This means that family businesses point 5.9529 higher than NFBs when engaging with foreign direct investment. Firm age has a negative effect (B=-2.8531, p=0.000), which is statistically significant. As expected, established companies know more about the international market and they are more willing to take the risk of engaging in a JV. Looking at model 4, similar results arise. The relationship between family ownership and total stake is positive (B=6.2672, p=0.000). FBs score 6.2672 higher than NFBs, meaning that family firms tend to acquire more stakes of the subsidiary when they do business abroad. Firm age also have a statistically significant negative effect in this model (B=-0.0368, p=0.000). Thus, the analysis accepts hypothesis 3.
Model 5 analyses the moderating effect of firm size on the relationship of hypothesis 1. The model is statistically significant with an F score of 6.62 (df1=8, df2= 275) and a p-value of 0.000. The relevant variables are not statistically significant though. Family ownership and firm size betas are not relevant being the p-values 0.910 and 0.102 respectively. The interaction term multiplying family ownership and firm size are not statistically significant either (B=-0.0109, p=0.744). Therefore, the hypothesis that firm size moderates the relationship between family ownership and international sales cannot be accepted.
Model 6 tests hypothesis 4b. The model has an F score of 11.18 (df1=8, df2=286) and a p-value of 0.0000, which is statistically significant. The effect of firm size in the difference in global sales between FBs and NFBs is not statistically significant with a p-value of 0.246. Size alone though appears as having a positive relationship (B=0.0370, p=0.044). Nevertheless, the study cannot accept the hypothesis that the size of family businesses influences the global sales level.
Model 7 and 8 analyzes the effect that firm size has on family firms’ percentage of direct and total stake in the subsidiaries, compared to that of NFBs. Either model 7 and 8 are statistically significant as a whole with an F score of 175.10 (df1=8, df2=31545) and 9736.72 (df1=8, df2=77624) respectively and a p-value of 0.000 each. Firm size has a positive effect in family firms direct stake possession (B=0.3092, p=0.619). According to the p-value, the interaction term is not statistically significant at any significance level. The moderating effect of firm size on family ownership and direct stake relationship cannot be accepted. On the opposite, model 8 shows that the interaction between firm size and family businesses in the level of commitment is positively related (B=-0.1183, p=0.713), being the interaction variable non-statistically significant. Thus, firm size cannot be accepted as a moderator on the relationship between FBs and either the direct or the total stake.
5. Discussion
The purpose of this research is to provide evidence to suggest on the singularity of FBs international strategy compared to NFBs together with the moderator effect of firm size on the relationship between FBs and their internationalization level. The aim is to extend the knowledge about the ambiguous relationship between family ownership and international strategy in terms of scale, scope, and level of commitment. Previous research raised contradictory arguments; while some authors disclosed that family firms are more
international than non-family firms (e.g.Zahra, 2003; Calabró, Torchita, Pukall, & Mussolino, 2013), others ascertained that, in comparison to NFBs, FBs are negatively related with the level of internationalization (Fernández & Nieto, 2005; Segaro, Larimo, & Jones, 2014).
While preceding studies mainly focus on the international strategy of small and medium family businesses and a few on large family firms (Laufs & Schwens, 2014), very few studies consider large family businesses. The omission of firm size is the potential reason why the results of past research were not congruent. This paper introduces the size of the firm as a moderating fact in the relationship between family (versus non-family) businesses and their international scale, scope and entry mode strategy. The addition of the firm size is expected to offer conclusive explanatory arguments on the relationship.
A number of hypotheses are tested to prove differences between the continuum groups regarding their international strategy. The underlying points of the results are that both the international scale and scope of FBs do not differ from NFBs. This study considers the largest companies from six European companies. Thus, large family companies and non-family ones cannot be told to have different levels of international and global sales. Regarding the level of commitment, the results stress a difference between the two groups. As expected, FBs decide for foreign entry mode choices that require higher commitment. Another interesting point is that there is a correlation between the level of commitment and the age of the firms, the younger the firms are, the higher the level of engagement; it may be related to the experience accumulation. The analysis of the firm size and its moderating effect on the mentioned relationships is not compelling. Apparently, firm size does not affect the level of international sales, global sales or the level of commitment in family-owned businesses.
The academic relevance, the managerial implications and the limitations jointly with the future research direction are exposed in the sub-sections bellow.
5.1. Academic relevance
The findings of this study contribute to the existing literature in the international strategy differences between FBs and NFBs. FBs are expected to be more risk-averse and prudent when investing abroad (Lin, 2012). This comes from the argument that FBs are more willing to give up financial resources than to keep their SEW (Zahra, 2003). Members of the family consider the company as more than an economic activity, they consider the company as their wealth, reputation and legacy (Segaro, Larimo, & Jones, 2014). International diversification requires a rise of capital and expertise. Accordingly, FBs would need to engage in debt and let expert outsiders have a right in the firm. The out-of-control feeling that internationalization process endeavour is not appealing for FBs (Gómez-Mejía, Makri, & Lazarra, 2010). The tests offer another perspective although. The results unexpectedly suggest that family business do not have different levels of international scale and scope; their level of cross-border sales is in line with NFBs’ level. The results do not find any difference between the two groups, which proves that family-owned companies intend to expand as NFBs do. The will of FBs to internationalize can be explained by their long-term focus approach; they want to assure the future of upcoming generations (Laufs & Schwens, 2014). FBs, as all other companies, see in international diversification a strategic option in order to increase competitive advantage in both domestic and foreign markets (Calabró, Torchita, Pukall, & Mussolino, 2013); internationalization serves as an opportunity to alleviate risks of falling behind and keep the position in the market (Gómez-Mejía, Makri, & Lazarra, 2010).
Regarding the relationship between family ownership and the level of commitment, the results are as expected. FBs prefer higher level of ownership shares in their subsidiaries than NFBs. FBs are more willing to bear the high administration costs of majority-owned subsidiaries rather than sharing the control of the firm with an outsider. Less committed entry
