Chris Graves is a PhD candidate at the University of Adelaide, South Australia, and a lecturer in the school of commerce, University of South Australia. Jill Thomas is associate head (research) in the graduate school of business at the University of Adelaide.
Research shows that families are less likely to go international than non-family firms, even though success is highly likely. Chris Graves and Jill Thomas examine the strategies
Worldwide, family firms make a significant contribution to local and global economies. So it is not surprising that there is growing interest in exploring how the complexities associated with managing these businesses influence their operations. How do family businesses respond to the challenges brought about by an increasingly globalised marketplace? In Australia, we compared the ability of family and non-family businesses to take advantage of global opportunities through adopting international growth strategies.
The ability of the Australian economy to benefit from globalisation is dependent on Australian businesses developing a global mindset and exploiting their competitive capabilities internationally. Although there is little empirical evidence linking exporting and business survival, a number of studies have found that exporting small to medium-size enterprises (SMEs) record significantly higher growth. According to the Australian Trade Commission, only 4% of all businesses in Australia are engaged in exporting, which is well below that of most OECD countries. Although geographical distance may explain why Australia lags behind its OECD partners in export activity, it cannot explain the whole gap. In response to this, the Australian Government has set an ambitious target of doubling the number of Australian businesses exporting by 2006.
For many years, international business and strategy research has focused on issues surrounding the globalisation of large businesses with research into the globalisation of small to medium enterprises flourishing only more recently. In the main, SMEs have entered the global marketplace through internationalisation: the exploitation of their unique products and knowledge globally, from a domestic base. Although SMEs do engage in a range of strategies, exporting is the most common foreign market mode, due to the low risk and capital required.
Harmony or financial success
There has been scant research into the internationalisation process of family firms, particularly those within the SME sector. Because family firms have to contend with the influence of three diverse sub-systems: family, ownership and business systems, they may face unique challenges to growing internationally when compared with their non-family counterparts. The points, taken from family business literature, suggest that internationalisation of family businesses is likely to be lower than that of non-family businesses.
We tested this in our study, Internationalisation of the Family Business: A Longitudinal Perspective. The data used in this study was obtained from the Australian Bureau of Statistics' Business Longitudinal Survey (BLS), which was conducted over a four-year period. Response rates exceeded 90% – much higher than that typically achieved in academic research.
The results of the Australian study highlighted that family firms were less likely to venture into the international marketplace compared with their non-family counterparts. However, when examining the firms that had ventured into the international marketplace, no significant difference was found in the extent to which family and non-family firms had subsequently grown internationally. These results suggest that the greatest challenge faced by family firms is initiating the internationalisation of its operations. Once family firms do so, there is no difference in the extent of their international expansion when compared with their non-family counterparts.
To explore possible reasons why family firms may have greater difficulty in initiating internationalisation strategies, a comparison of the characteristics of family and non-family firms was done.
To summarise, when comparing the internationalisation of family and non-family firms, family firms have greater difficulty in initiating internationalisation strategies. As the examination of firm characteristics reveals, this difference may be due to the limited resources, slower growth rate, lack of business networks and the limited managerial capabilities of family firms.
Although family firms may lag behind their non-family counterparts when expanding internationally, what is particularly pertinent to family business owners is financial performance. An examination of the financial performance of firms revealed that family firms consistently outperformed their non-family counterparts at each stage of internationalisation. Although this difference was not persistently significant over the years examined, this finding highlights that family firms perform as well as, if not better, than their non-family counterparts when expanding internationally.
More research is required to understand what factors influence the ability of family firms to successfully execute internationalisation strategies. For example, further analysis of what factors act as 'triggers' to internationalise would be of value. Also, research on how family firms can successfully internationalise with limited resources would be of value to the family business community.
As indicated earlier, the Australian government aims to double the number of Australian businesses exporting by 2006. The findings of our study have demonstrated that there is a case for particular assistance to help family-owned and managed businesses grow internationally and thus contribute to achieving such a target. Government policies to help family businesses might in turn increase their contribution to the economy. Interventions might take the form of providing advice on sound ownership practices and policies, strategic management, and collaborating and networking in the wider global market. While there are many advisers focusing on managerial and technical advice, family businesses may need greater assistance to ensure effective ownership and management structures required for growth. Because family businesses are sometimes reluctant to seek outside advice, government can play a key role in nurturing networks that bring quality family business advisors and family businesses together.
For family businesses owners and managers, the awareness that family owned and managed businesses perform as well as, if not better than, their non-family counterparts as they grow internationally may encourage greater effort by the family businesses to overcome any barriers to start international activities. Qualified family business advisers might also benefit from this awareness and facilitate family businesses to achieve increased growth in international markets.