Abstract
Family firms possess unique features that shape their international strategies. These features include family-based asset specificity and associated resource constraints when embarking on internationalization, as well as an inherent propensity towards bifurcation bias: a dysfunctional decision rule that de facto favours family-based (“heritage”) assets and routines over those assets and routines that do not have a direct connection to the family (“commodity”). Bifurcation bias creates affect-based governance practices that may clash with (boundedly) rational economic considerations to guide international strategy. Using internalization theory as our conceptual lens, we explore the impact of bifurcation bias on governance-related aspects of international strategy. We argue that in the long run, the internalization theory prediction holds, whereby only efficient governance structures will be retained. In the short- to medium-term, bifurcation-biased family firms may deviate from efficient international governance choices, which will negatively affect their success in host markets. We explore factors that influence the firm’s propensity toward bifurcation bias and the magnitude of the bias’s dysfunctional effect on international strategy These factors include: macro- and micro-level cultural characteristics, the firm’s ability to implement anticipative and corrective safeguards, and the firm’s recombination capability.
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Notes
- 1.
Bounded rationality is one of two behavioural assumptions which undergird Williamsonian TCE. Bounded rationality was defined canonically by Herbert Simon as behaviour which is “intendedly rational, but only limitedly so” (Simon, 1961, p. xxiv). Simon’s concept of bounded rationality provides a more useful and realistic cognitive-behavioural framework than strict rationality (as found in neoclassical economics) for describing the actions of economic actors with limited capacities for accessing and processing complex information, evaluating options and making optimal decisions.
- 2.
Bounded reliability explains sources of commitment failure and is an extension of the second behavioural assumption of Williamsonian TCE—opportunism, described by Williamson as “self-interest seeking with guile” (Williamson, 1981, p. 1545), or “calculated efforts to mislead, distort, disguise, obfuscate or otherwise confuse” (Williamson, 1985, p. 47). Bounded reliability still allows for opportunistic behaviour as a cause of commitment failure, but also recognizes cases of commitment failure that materialize despite the ex ante good faith intentions of the unreliable actor (Verbeke & Greidanus, 2009), and includes such distinct manifestations as benevolent preference reversal and identity-based discordance (Kano & Verbeke, 2015). Thus, the behavioural assumption of bounded reliability takes into account the propensity of human actors (assumed technically competent) to fail in their commitments, but without the default assumption of malevolence implied by the narrower concept of opportunism.
- 3.
While extant international business research has tended to use Hofstede’s (1980) framework of values as a default measurement instrument of cross-cultural differences, Schwartz’s dual theory of values has been somewhat underutilized, with some notable exceptions—see, for example, Duran et al. (2017). Although Schwartz’s dual theory is somewhat more complicated—Schwartz himself has acknowledged this difficulty (Schwartz, 2011)—the allowance which it makes for within-country variation of individual values provides for a subtlety of analysis which is useful when examining the critical role played by the individually held values of influential family firm owners and managers. Other conceptualizations of values commonly used in IB, such as Hofstede or GLOBE, appear to confuse the level of the individual with the level of the society (Schwartz, 2011), which makes Schwartz’s model superior for the purpose of our analysis.
- 4.
The interview was conducted in 2017 as part of data collection for a large-scale family firm governance research project.
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Kano, L., Verbeke, A., Johnston, A. (2021). Internationalization Decisions in Family Firms: The Impact of Bifurcation Bias. In: Leppäaho, T., Jack, S. (eds) The Palgrave Handbook of Family Firm Internationalization. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-030-66737-5_1
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