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The internationalisation process of family businesses

Kristin Cappuyns is research associate of the Family Business Chair at IESE, Barcelona, Spain and executive board member of IFERA.

Torsten M Pieper is a student at the University of Saarland, Saarbrücken, Germany and IFERA associate.

No longer a utopia?

Some interesting shared experiences between German and Spanish family businesses illustrate that a successful internationalisation process is not a utopia for family firms. Moreover, the excuse of the family business's intrinsic characteristics for its lower level of international activity is replaced by an emphasis on the owner-manger's pivotal role as the initiator and promoter of the firm's internationalisation process.

When comparing the international activities of family businesses to those of non-family businesses, family businesses are seen to produce a lower level of exports and, similarly, direct foreign investments. Furthermore, when family businesses enter into the international marketplace, the pace of the process  tends to be slower than in non-family businesses.

Aside from competitive pressures, phenomena such as globalisation and rapid product life cycles urge companies to reinforce their internationalisation strategies by exporting, establishing wholly-owned foreign subsidiaries or by entering strategic alliances.

Both family businesses and non-family businesses, at some stage of their business life cycle, need to trust outside business partners, despite the fact that these businesses may have conflicting interests or may even be competitors. A disadvantage, however, to entering a business partnership can be the loss of control – which may be hard for a family business owner.

The few publications that have addressed this area agree that there are certain internal characteristics of family businesses, primarily the overlap of the family, the business and the ownership system, that can cause a delay in their internationalisation process – compared with non-family businesses. As a consequence of this overlap, family businesses have to deal with some specific characteristics that might hinder their internationalisation process. Three of the most common are:

- A concentration of the decision-making power in the hands of one or several owners;
- Prolonged periods of the same persons at the head of the organisation and, hence, a delay in the succession process;
- An aversion to risk – especially in times of low profits.

Despite these characteristics there are several well-known examples of family firms that have been able to successfully conquer the international markets and, as a result, play a significant role in the global economy. With this apparent contradiction in mind, studies were carried out in Germany and Spain, to try and discover the business strategy of these family businesses and how they manage to compete for global market leadership.

The most interesting result of these two studies is the break with established theories that have found that the intrinsic characteristics of family firms were the real barriers to a successful international strategy. Rather, the owner-manager's personal commitment to the continuity of the business seems to be the most powerful and determining factor.

Both studies agreed, however, that this commitment to the continuity of the business tends to be higher when the decision to enter the international market is taken at an early stage in the life-cycle of the family business.

The learning process
The internationalisation of companies does not happen overnight – it is not a case of "today I am local and tomorrow I will be international" (Gallo, Ariño, Máñez & Cappuyns, 2001). Inter­nationalisation takes time and is a continuous process moving through various stages, with regular advances and setbacks, depending both on the level of existing knowledge  and the commitment of the comp­any to compete in these external markets.

Apart from the cost advantage (ie, product standardisation or harmonis­ation) and the benefits of establishing a closer international working relationship with key cust­o­­mers, internationalisation can also be used as a means of organisational learning.

Three preliminary conditions
There are several prerequisites for a smooth and successful deployment of the internationalisation process.

The first condition for a successful move into the international marketplace is the production of a leading product or service in the (niche) market where the bus­i­ness is active. Once the company is a leader in its field nationally, it is then time to create a new challenge and examine the opportunities available on the international market.

The family business should be financially sound at this stage as it will be forced to invest as much of its financial resources as possible. Also, it is crucial that the family business leader realises that any loss of power and authority resulting from a majority share capital ownership are of minor importance when a business is striving for an effective inter­national collaboration. High levels of both professional competence and integrity from both partners will be the determining factors for a successful international collaboration.

Another requisite is a strong organisational structure, usually headed by the founder of the company or his successor, showing high ELISA values – excellence, labour ethic, initiation, simplicity of life style, austerity (Gallo & Cappuyns, 1998). These strong leadership skills and the conviction to introduce high quality products into new markets are at the heart of a successful international­isation process which ensures the company's continuity and should be part of the company's strategy from the early days of the firm's existence.

Furthermore, these variables – product excellence, economic resources and a strong organ­is­ational structure – will attract capable and trustworthy managers, so that the business owner can relinquish some of his/her responsibilities and focus wholly on a viable international strategy.

The start-up process
An analysis from both the German and Spanish studies shows significant differ­ences between two of the factors often quoted in internationalisation pro­cesses, ie 'when the process will really instigate in the fam­ily business life cycle' and 'the pace of its start up'. The combin­­ation of these can be termed 'the lev­el of commitment to international­isation'.

Commitment and leadership
As shown above, commitment is a critical ingredient for successful internation­alisation of a family firm. The degree of commitment can be measured by a combination of the stage in the lifecycle of the business and the amount of time the business takes to initiate the process of internationalisation. As in the Spanish study, research focusing on German family businesses revealed that those firms who took the decision to go international at an early stage had greater international success. This stage is charac­terised by the presence of the founder as an owner-manager at the top of the firm who determines where he/she wants his/her company to be in the future. Even though he/she may struggle with some of the intrinsic character­istics of the family business at some point, this family business owner is driven by strong leadership skills, facing up to any challenge in his/her way and will use any means possible to achieve his/her goals.

Another finding of the German study was that family businesses marked by strong family leadership, but who also rely on the expertise and experience of outside-managers, are more likely to have greater international success than those firms who fail to conciliate both (Pieper, 2001).

In contrast to past research findings, data from both these studies has revealed that the characteristics of family businesses are not the real barriers to the imple­mentation of an international strategy, but that it is the owner-manager's personal commitment to the continuity of the business which seems to be the driving force behind a family business successfully entering the  international marketplace.

These studies provide several important challenges for family business owner-managers strongly committed to their firm's prosperity but family business owners should not be diluded that internationalisation of the business is an easy task. They should be aware, however, that the longer the decision is put off, the more obstacles they are likely to meet and the less likely the internationalisation process is to succeed. However, bringing together both these research projects has opened up a new area of research into family business – its characteristics and its similarities beyond national borders.

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