Research | Funded Projects

FAMILY FIRMS AND SCOPE OF INTERNATIONALIZATION

The goal of this research project is precisely to study the interaction between family firms, political risk and internationalization strategy. Specifically, we argue that:1) MNEs can build on their previous experience dealing with political risk to manage a FDI location portfolio with a wide diversity of environments, leading to a wider scope of internationalization;2) family firms follow a more narrow scope of internationalization as a consequence of their higher risk aversion;3) despite this higher risk aversion, when the family controls both the majority of ownership and board, the strength of the positive effect of previous experience on multinationality is enhanced. This is due to the fact that, in most cases, family managers have been associated with their businesses for a very long time and “in many cases, they are founders or later generation executives who have spent enduring apprenticeships within their firms.” (Miller et al., 2013, p. 556). This long-term commitment of family members promotes a strong identity that is shared not only between family managers but also passed from one generation to the next one (Miller & Le Breton-Miller, 2005; Arregle et al., 2007). While most corporations struggle to achieve a set of common values, vision and homogeneous behaviours across the members of top management teams, this is much easier for family firms due to kinship, common history and family name that naturally promote the exchange of information and experience (Banalieva & Eddleston, 2011).While the debate on the impact of family involvement, both in ownership and in management, on firms’ attitude over internationalization has gain momentum in recent time (Pukall & Calabrò, 2014; Sciascia et al., 2012; Majocchi & Strange, 2012), it has mainly focused on internationalization through exports (Fernandez & Nieto, 2014). With very few exceptions (Bhaumik et al., 2010), much less attention has been devoted to the role of family control on firms’ FDIs. This gap is somehow surprising especially because the risk associated with each of these entry modes is very different. While the risks connected with export are somehow limited given the small amount of investments required and the possibility to quickly reverse this choice, FDI requires a much larger level of fixed and sunken costs and long term-commitment.The importance of family firms in the world economy should not be underestimated. Family firms are the most common type of company not only in the Western Europe (Faccio & Lang, 2002) and in Asia (Shleifer & Vishny, 1997) but also in the U.S. (Gedajlovic et al., 2012). These firms are also important investors in the international arena. Among the most important international companies in the world there are firms such as Wal-Mart in the US, Schaeffler/Continental, Luxottica, Inditex and Banco Santander in Europe, Samsung in Korea or Midea Group in China, that are family firms.We will test our hypotheses on a sample of Spanish companies with investments in more than 100 countries. This context is particularly appropriate for our research purposes given the large number of Spanish firms that are family firms (Merino et al., 2014), the tumultuous international growth of some of them (Colli et al., 2013), their prominent role in several industries within global markets (Guillén, 2005) andthe relevant impact of political risk and political capabilities on their international expansion (García-Canal & Guillén, 2008; Jiménez, 2010), corporate strategy (Poisson-de Haro & Bitektine, 2015) and performance (Jiménez & Delgado, 2012). Specifically, the sample will be constructed as follows. All MNEs with more than 250 employees registered at the beginning of 2007 at the Foreign Trade Institute (ICEX) and the website www.oficinascomerciales.es, managed by the Spanish Ministry of Industry, Tourism and Trade will be included in the sample.