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Family business going abroad: the effect of family ownership on foreign market entry mode decisions

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Abstract

Research on family firms’ internationalization is growing, but empirical findings are mixed. To reconcile prior studies, we focus on strategic decisions related to internationalization, specifically the foreign market entry mode selection process. We suggest that the choice about entry mode is especially significant for family owners because it may either align or conflict with two key family-related goals: maintaining family control and keeping a long-term orientation of the business. We argue that these goals have different weights within family firms according to differences in ownership structure, with significant implications for international strategic decisions. We rely on a sample of medium-sized family-owned Italian firms and show that different types of family ownership structures affect entry mode decisions differently and specifically influence the time horizon of the foreign investment and willingness to cooperate with external actors. We also provide empirical evidence that the presence of a non-family manager moderates the relationship between family ownership and entry mode decisions. Our study expands on prior research by highlighting how family firms enter foreign markets and pointing out the strategic implications of family firm heterogeneity.

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Notes

  1. Mediobanca defines a "medium-sized" firm as one with an annual turnover of €16 million to €355 million, with 50–499 employees, and not controlled by any larger or non-Italian firm.

  2. Two variables were used to define the sample strata: the Pavitt classification (scale intensive, specialized suppliers, traditional producers, high tech) and firm size (number of employees: 50–99, 100–199, 200–500). After computing the stratum, the means and variances, the relative sample sizes for the strata were determined using the optimal allocation method. We ended up with an overall target sample size of n = 206. To get to this sample size, we contacted a total of 233 firms to participate in our survey and 13 declined, mostly from the smallest size class. We replaced these with similar firms from the same stratum.

  3. As a single firm may account for multiple entries (period 1998–2012), we considered only the first entry into a country and excluded all entries relating to a change in the firm’s involvement in a country where it was already present. For instance, we excluded the establishment of a wholly owned subsidiary in a country already served by export activity, or a cooperative agreement that scaled up an existing joint venture.

  4. Even if some variables have been excluded, standard errors may be relatively high because of the presence of a residual multicollinearity in the model, which persists even after dropping some variables. As efficiency may not be guaranteed in the estimation, coefficients with a t ratio greater than one may actually be statistically significant. However, to avoid over-interpretation of the results, we have adopted a conservative policy by considering the commonly accepted t ratio as the threshold for the statistical significance of the estimate.

  5. The category of contractual agreements includes contract manufacturing, licensing, and other forms of non-equity contracts.

  6. Long-term involvement implies a commitment by the firm and opens the path to equity investment modes, whereas, short-term considerations make non-equity approaches more easy to set up and also to abandon.

  7. An extended version of the entry decision process may actually consist of multiple nested decision sets, where the very first decision is whether or not to sell goods abroad. As the modeling approach of this peculiar first stage could be very difficult because of the heterogeneity of firms that do not sell abroad, we only considered the nested decision set that includes firms that decided to expand into foreign markets. Therefore, firms using a high- or low-commitment entry mode (equity vs. non-equity) formed our first decision step and, conditional on this decision, two other options (cooperative vs. non-cooperative) have been considered to identify the sequential decision process.

  8. Estimated results of these models are not presented for the sake of brevity, but are available from authors upon request.

  9. A number of different models have been estimated for checks on robustness. The basic results are confirmed. The estimates are available from the authors upon request. Furthermore, on the modeling issue, let us recall that the results of interacted regressions must be taken with caution in probability models and in the absence of constitutive terms in the estimated equations.

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    Authors and Affiliations

    1. Department of Business and Management, LUISS University, Viale Romania 32, 00197, Rome, Italy

      Claudia Pongelli & Matteo Giuliano Caroli

    2. Department of Economics and Social Sciences, Università Politecnica delle Marche, Piazzale Martelli, 8, 60100, Ancona, Italy

      Marco Cucculelli

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    1. Claudia Pongelli
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    2. Matteo Giuliano Caroli
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    3. Marco Cucculelli
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    Correspondence to Claudia Pongelli.

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    Claudia Pongelli and Matteo Giuliano Caroli have contributed to Sects. 2 and 3. Marco Cucculelli to Sect. 4. All Authors have equally contributed to Sects. 1 and 6.

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    Pongelli, C., Caroli, M.G. & Cucculelli, M. Family business going abroad: the effect of family ownership on foreign market entry mode decisions. Small Bus Econ 47, 787–801 (2016). https://doi.org/10.1007/s11187-016-9763-4

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