Changes in the competitive environment are driving family businesses to identify opportunities as well as explore the international marketplace. Internationalisation is a valuable strategy for growth and expansion. Even family SMEs, which traditionally focused on their domestic markets are now facing the complex strategy of internationalisation. Internationalisation entails the re-assessment of the family business’ mission, philosophy and strategic intentions.
Risk-taking is a key challenge facing family businesses
Family SMEs typically take a more traditional pathway to internationalisation, where they grow incrementally by progressively entering new and international markets. Family businesses deepen their commitment and investment as they gain more market exposure in the process of internationalisation.
Internationalisation helps SMEs capitalise on market imperfections in one’s own geographical region as well as achieve greater production volume. Internationalisation aids the acquisition of new knowledge that can lead to the building of valuable skills.
One recognises that internationalisation may exacerbate liabilities of newness and smallness by, for example, introducing additional complexity into an already inefficient internal operation.
This may be a temporary challenge however, that could soon pay off the creation of globally knowledgeable players able to operate in multiple regions of the world.
Different types of resources make internationalisation possible. Technology, brands, culture, managerial capabilities and knowledge of international markets are among such resources. Lack of strategic resources and the uncertainty and complexity of the process may make internationalisation a difficult goal to achieve. There are a number of key determinants of the internationalisation pathways of family businesses, among these are commitment, family unity, harmony and equity. The expertise of family members working in the business, an attitude towards risk-taking, and the right financial resources are positive contributors to going international.
Risk-taking is a key challenge facing family businesses. Risk-taking is multi-faceted and family business leaders need to pay attention to its different manifestations, such as innovation and alliances.
These manifestations may allow a business to adapt to and profit from changes in the environment. In alliances, family businesses contract with another business to work on a specific project. The life of an alliance is limited only to the life of the specific project. Such strategic alliances are very flexible and less risky.
Family involvement also influences international growth patterns. For example, family businesses tend to choose physically close countries when expanding, and locate their operations in close proximity to the residence of family members.
Although family involvement is positively correlated to internationalisation it is negatively associated with the number of countries that the family business sells to.
Attitudes and behaviours towards internationalisation vary across generations. Later generations tend to be more qualified and this positively influences the decisions towards internationalisation. In preparing the next generation for succession it is recommended that they experience working outside the closed domestic environment.
Social networks are highlighted as important in the internationalisation of family businesses. Social networks potentially lead to collaborations and form part of an entrepreneur’s broader business network that facilitates exploration of internationalisation opportunities culminated by successful entry into these foreign markets.
External non-family owners bring this broader social network and provide a source of resource that supports internationalisation. Open structures, that are characterised by the involvement of external non-family owners and external non-family board members facilitate and motivate internationalisation.
The involvement of external parties has been found to promote international scale and scope by providing a means for balancing the negative and positive family effects in family-controlled businesses.
The acquisition of resources needed for expanding into international markets is costly, and external non-family owners can be helpful resource providers for resource-constrained family businesses. Small family businesses that have another company as a large shareholder tend to be in a better position to internationalise as the shareholder company provides essential resources to enter foreign markets.
Similarly, family businesses that enter into alliances and collaborative agreements forming corporate networks can also contribute to improving national and international competitiveness. The advantages of internationalisation are multi-faceted. Expanding into international markets extends a business’s opportunities to the world.
Larger markets imply greater demands for the business’ products and services which, in turn, could lead to economies of scale. Internationalisation also allows a business to take advantage of a foreign country’s competitive advantage.
It spreads the risks of doing business and can lengthen its product lifecycle.
Roberta Fenech is an associate consultant for EMCS group and a lecturer at St Martins Institute of IT.