Family versus nonfamily business: A comparison of international strategies

Journal of Family Business Strategy 1 (2010) 108–116

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Journal of Family Business Strategy journal homepage: www.elsevier.com/locate/jfbs

Family versus nonfamily business: A comparison of international strategies Mahamat Abdellatif a, Bruno Amann a,*, Jacques Jaussaud b a b

Toulouse University, 2 rue de l’est, 31400 Toulouse III, France University of Pau, France

A R T I C L E I N F O

A B S T R A C T

Article history: Received 7 March 2010 Accepted 9 April 2010 Available online 13 May 2010

The internationalization strategies of family businesses versus nonfamily businesses remain a neglected area of study. This investigation uses a sample of 759 Japanese subsidiaries worldwide that can be identified as family businesses or nonfamily businesses to reveal two key results. First, family businesses establish fewer joint ventures than nonfamily businesses, in relative terms, and resort less to using Soˆgoˆ Shoˆsha, or Japanese general trading companies. This result implies family businesses prefer more to remain independent compared with nonfamily businesses. Second, expatriation policies do not differ significantly between family businesses and nonfamily businesses, contrary to a priori expectations. Differences in the strategic behavior of family businesses and nonfamily businesses therefore do not appear in every aspect of the internationalization process. ß 2010 Elsevier Ltd. All rights reserved.

Keywords: Family business Entry modes Joint ventures Wholly owned foreign subsidiaries Soˆgoˆ Shoˆsha Japan

According to prior research, family businesses perform better and enjoy a sounder financial structure than do nonfamily businesses (Astrachan & Shanker, 2003; Heck & Stafford, 2001; Sharma, 2004), as has been verified empirically in many different countries (Martinez, 1994; Maury, 2005; Owens, 1994), including Japan (Allouche, Amann, Jaussaud, & Jurashina, 2008; Kurashina, 2003), and confirmed by various theoretical perspectives. Yet a paucity of empirical research considers the internationalization strategies of these businesses (cf. Carr & Bateman, 2009; Koopman & Sebel, 2009; Tsang, 2002; Zahra, 2003), their characteristics, or their performance. Most studies on internationalization fail to differentiate by firm type, even though the theoretical implications of stronger family business performance should lead to different internationalization strategies (e.g., different attitudes toward risk; Mishra & McConaughy, 1999; Ward, 1997). The methods, rate, and pace at which firms internationalize in different sectors and countries vary significantly, especially in terms of the characteristics of the management teams (Crick, Bradshow, & Chaudry, 2006). Similarly, international research should take into account differences between family businesses and nonfamily businesses, which may not follow the general conclusions obtained from combined samples. We compare the international strategies of Japanese family businesses and nonfamily businesses using a sample of 759 Japanese subsidiaries worldwide, drawn from the

* Corresponding author. E-mail addresses: [email protected] (M. Abdellatif), [email protected] (B. Amann), [email protected] (J. Jaussaud). 1877-8585/$ – see front matter ß 2010 Elsevier Ltd. All rights reserved. doi:10.1016/j.jfbs.2010.04.004

Kaigai Shinshutsu Kigyoˆ Soˆran database (Toˆyoˆ Keizai, 2004). To identify these companies as family businesses or nonfamily businesses, we rely on Kurashina’s (2003) work, and we find key differences in their international strategies. This unique, handcollected database enables us to provide three main contributions. First, we assess prior findings from literature on internationalization in terms of family businesses. Second, we contribute to analyses of family businesses that previously have lacked comparative studies. Third, we shed light on the specificities of family businesses’ internationalization processes. In the remainder of this paper, we first consider theoretical and empirical literature related to this topic and develop a set of hypotheses. After we describe the methodology and data collection, we present the results and discuss some specific behavior in terms of the internationalization strategies of family businesses compared with nonfamily businesses in Japan. We conclude this paper by discussing limitations and indicating suggestions for future research. 1. Background and hypotheses 1.1. Defining family business Family firms represent a significant economic force worldwide (IFERA, 2003), yet no clear consensus exists regarding the definition of family businesses. However, Villalonga and Amit (2004) argue that most definitions include at least three dimensions: One or several families hold a significant part of the company’s capital; family members retain significant control over the company (e.g., distribution of capital, voting rights) with

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possible statutory or legal restrictions; and family members hold top management positions. Chrisman, Chua, and Sharma (2005) differentiate between definitions that focus on family business components, such as ownership, governance, management, and transgenerational succession, and those focused on what a family business is, including the intent of the family to keep control, firm behaviors, and idiosyncratic resources arising from family involvement. Despite the lack of clear consensus about its definition then, there is broad agreement that a family business is a business owned and managed by a nuclear family (Chua, Chrisman & Sharma, 1999; Graves & Jill, 2008)1. 1.2. Family business attitude: Risk and control Internationally, many family firms enjoy unique advantages, such as remarkable long-term commitment and employee loyalty (Miller & Le Breton-Miller, 2005). Advances in family business research (Chrisman et al., 2005; Miller & Le Breton-Miller, 2005; Miller, Breton-Miller, Lester, & Canellla, 2007) are not mirrored in international business journals or textbooks (Chrisman et al. 2008) or commensurate international research (Carr & Bateman, 2009). Furthermore, agency theory, stewardship theory, and the resourcebased view (RBV) are major frameworks to define the strengths and the weaknesses of family businesses (Chrisman, Kellermanns, Chan, & Liano, 2010; Chua, Chrisman, & Steier, 2003; Venanzi & Morresi, 2010). Three main internal family business characteristics (Gallo, Tapies, & Cappuyns, 2004) may influence internationalization strategies and practices:  Strong desire to keep the control and influence;  Specific attitude toward risk;  Specific governance. These characteristics often are linked to the idea that rather than ownership concentration per se, the identities of the owners and their priorities and preferences influence corporate conduct (Miller & Le Breton-Miller, 2009). 1.2.1. Keeping control and influence Prior literature on family-controlled businesses as an organizational form has emphasized the desire to keep control, linked to the long-term orientation of the shareholders’ family, which is usually anxious to preserve the family inheritance for following generations (Miller & Le Breton-Miller, 2006). According to Miller and Le Breton-Miller (2009) ‘‘family owners, preoccupied with corporate longevity, are said to pursue strategies of ‘continuity’ that avoid potentially destabilizing acquisitions and build enduring relationship with stakeholders inside and outside the firm to sustain the business and reduce risk.’’ Maybe more than the concept of control, the concept of family involvement explains differences of family businesses from nonfamily businesses. On the one hand, family control provides the family ultimate control of the firm and represents complete or majority family ownership (Nordqvist, 2005). On the other hand, family influence represents situations in which the family may have a substantial ownership stake or managerial presence in a firm but lacks unilateral control (Chua et al., 1999). Regarding the influence of family involvement, Sirmon, Arregle, Hitt, and Webb (2008) posit a greater positive effect of family influence compared with family control, because it avoids negative outcomes resulting from strong family control. That is, family involvement leads to unique and 1 In this paper, as in prior works (Allouche et al., 2008; Kurashina, 2003), we identify a family business along two criteria: the share of capital in the hands of the family and the involvement of family members in managing the firm, meaning family members hold management positions or serve on the Board of Directors and represent some of the main shareholders.

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valuable resources, such as asymmetric information held by family managers, patient and survivability capital and lower agency costs (Sirmon & Hitt, 2003; Sirmon David et al., 2008). Family firms even may come into existence because of the reciprocal economic and noneconomic value created by combining family and business systems. This RBV implies that the confluence of the two systems leads to hard-to-duplicate capabilities, referred to as ‘‘familiness’’ (Chrisman et al., 2005; Zellweger, Kimberly, & Kellermanns, 2010). Furthermore, it motivates unique strategic behaviors (Arregle, Hitt, Sirmon, & Very, 2007; Carney, 2005; Habbershon & Williams, 1999) and influences the strategic decisions that manage resources to create optimal, long-term value (Sirmon & Hitt, 2003; Sirmon David et al., 2008). Thus, decisions about internationalization strategies and practices should depend greatly on family involvement. Sciasca, Mazzola, Astrachan, and Pieper (2010) underline, however, that apart from positive forces resulting from family involvement, opposing forces are at work as well, leading to a nonlinear relationship between family ownership and internationalization of firms. On one side, a stewardship mentality (Davis, Schoorman, & Donaldson, 1997) may support international entrepreneurship; on the other side, stagnation forces linked to lack of resources (Chandler, 1990; Grassby, 2000), family conflicts and succession difficulties (Schulze, Lubatkin, & Dino, 2003) may lead to more conservative strategies and impede international entrepreneurship (Sciascia et al., 2010). 1.2.2. Risk attitudes The ultimate risk for a family business is the loss of family wealth created over time (Chua et al., 1995). Academic literature therefore suggests that family businesses tend to have conservative attitudes and be risk averse, and a recent review by GomezMejia, Takacs, Nunez-Nickel, and Jacobson (2007) confirms the high agreement among finance, accounting, management, and social science research on this point. This argument largely derives from agency theory, which holds that family principals have most of their wealth tied to one company and cannot easily diversify their portfolio. Because they depend on a single organization for their welfare, they are vulnerable to and avoid business risk to prevent negative outcomes, whose potential outweighs the potential benefits of risky tactics (Gomez-Mejia et al., 2007). Yet, a contingency-based view also suggests the possibility of varied risk preferences (Gomez-Mejia et al., 2007). For example, the concept of socioemotional wealth may represent a key goal for family businesses, such that family-owned firms would be more likely to perpetuate the owner’s direct control over the firm’s affairs (Gomez-Mejia et al., 2007). Because owners want to preserve socioemotional wealth, when diversification (e.g., going international) implies a loss of socioemotional wealth, family owners prefer to avoid that strategic choice, even if it could confer some risk protection (Gomez-Mejia, Makri, & Kintana, 2010). As a general statement, family businesses should be more risk averse than nonfamily businesses. Because country risk is a major issue in international business decisions, we propose: H1. When they expand abroad, family businesses are more country risk averse than are nonfamily businesses. 1.3. Major issues in internationalization International management literature has paid significant attention to three issues: (1) the nature of the subsidiaries that firms establish abroad, whether wholly foreign owned or international equity joint ventures; (2) expatriation policies as a control mechanism of activities abroad; and (3) the combination of a different control instruments to implement in overseas subsidiaries. We focus on the former two issues, in line with the nature of the data

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we use, and outline potential differences pertaining to family businesses compared with nonfamily businesses. 1.3.1. Nature of subsidiaries Establishing a subsidiary in an unknown market is neither easy nor riskless. Firms thus may establish international joint ventures with a local partner to benefit from its experience in the local environment and ability to access various resources (e.g., distributors and local suppliers, state agencies, human resources). However, wholly owned foreign subsidiaries are easier to control, and the decision making process is easier because they do not require constant confirmation by the local partner. Therefore, when firms legally may and have enough experience in a country, they should rely on wholly owned foreign subsidiaries instead of joint ventures. The practices by multinational companies in China during the past few decades provide a very clear illustration (Beamish, 1993; Jaussaud & Schaaper, 2006, 2007). In contrast, firms resort more to joint ventures when the risk level increases, because involving a local partner through a joint venture can help the firm manage high country risk (Abdellatif, 2007; Beamish, 1985; Kogut, 1988). Therefore, we hypothesize: H2. The nature of a firm, whether a family business or not, influences the nature of the subsidiaries that it establishes abroad. This influence derives primarily from the risk-averse nature of family businesses and their strong will to maintain their independence. Although joint ventures may ease challenges in the host country, they also require the firm to address local partner’s preferences in any major decision, which may challenge the firm’s independence. In turn, H2a. Family businesses are more likely to establish wholly owned foreign subsidiaries than are nonfamily businesses. Soˆgoˆ Shoˆsha, or general trading companies, such as Mitsubishi Corp., Mitsui & Co., Itochu and others, often provide capital and staff to subsidiaries that Japanese firms set up abroad. In doing so, Soˆgoˆ Shoˆsha have strongly supported the internationalization of Japanese business during the last five decades. They help reduce risk by providing experience and networks of relationships in the host country, particularly in emerging ones (Jaussaud, 1999; Miyashita & Russel, 1994). As they have developed worldwide from the beginning of the 19th century, one should remind that Soˆgoˆ Shoˆsha have been among the first Japanese firms to establish in any country which has accepted foreign investments. Being strongly involved in business almost everywhere, they also reduce the level of information asymmetry between trading partners. However, when a firm accepts a Soˆgoˆ Shoˆsha as a partner in a subsidiary abroad, this is most often at the expense of independence, something that family business are particularly reluctant to give up (Gallo, Tapies & Cappuyns, 2004). Therefore, H2b. Family businesses resort less to Soˆgoˆ Shoˆsha than do nonfamily businesses. 1.3.2. Expatriation Expatriation offers a crucial mechanism for controlling activities abroad (Perlmutter, 1969, 1974). Subsidiaries abroad face unknown and uncertain environments, which produce unexpected problems. One solution that protects the interests of both the subsidiary and the parent company is to expatriate talented and reliable staff members to the subsidiary. They make decisions according the firm’s objectives and managerial culture, and they help prevent resource leakages (Doz & Prahalad, 1986). Expatriation practices may vary from destination to destination. A lack of well-trained local human resources or managerial

experience often leads companies to expatriate many employees to developing countries, though they may prefer to hire local managers in developed countries (Delios & Bjo¨rkman, 2000; Perlmutter, 1969, 1974). Yet as qualified human resources become more common in developing countries, the level of risk of the host country becomes a more crucial determinant of expatriation. That is, firms send more expatriates to countries with high risk levels (Boyacigiller, 1990; Chung & Beamish, 2005; Harzing, 2001; Kumar & Seth, 1998). To the best of our knowledge, existing academic literature does not indicate likely differences in the expatriation policies of family businesses versus nonfamily businesses. For example, familiness, or the desire to spread and share the family’s values within the company (Habbershon, Williams, & MacMillan, 2003), may lead family businesses to send more expatriates abroad. But the will to share corporate values seems strong in most companies, because it offers a crucial mechanism of control. When local staff members share a fundamental set of corporate values, the firm gains global control over their behaviors, beyond the specific control mechanisms devoted to specific fields (e.g., accounting, production management, quality, investment decisions). Therefore, it is unclear whether family businesses would expatriate more than nonfamily businesses. Following Carney (2005), the parsimony argument suggests that family businesses would limit their expatriation of employees more than nonfamily businesses and use local staff whenever possible. However, the high cost of expatriation and the difficulties associated with finding staff members who are willing to be expatriated remain major issues for all types of companies (Hauser, 2003). Thus, we believe both family businesses and nonfamily businesses may exert similar efforts to be parsimonious with regard to expatriation. Furthermore, expatriation is strongly linked to country risk (Harzing, 2001; Kumar & Seth, 1998). Expatriates help manage unexpected situations in the host country, particularly risky ones, to support the interests of both the subsidiary and the parent company. However, risk may endanger expatriates, so multinationals might prefer to reduce the numbers of expatriates in highly risky countries particularly in the case of family businesses, because of extended paternalism from family to nonfamily members (Lee, 2006; Sciascia et al., 2010). Therefore, we hypothesize: H3. Family businesses tend to send fewer expatriates towards a given country then nonfamily businesses (Fig. 1). 1.4. Why Japanese businesses? To investigate potential differences in the internationalization processes of family businesses and nonfamily businesses, we consider Japanese companies for two main reasons. First, for this investigation, we needed an extensive set of reliable data pertaining to the subsidiaries that firms have established worldwide, and we have such data in the case of Japan but not for other countries. Second, as emphasized by academic literature, in both Japan and Western countries, family businesses perform better and have a sounder financial structure (Allouche et al., 2008; Kurashina, 2003). Therefore, Japan does not appear to be a unique or non-generalizable case in terms of family business variables. Regardless of these reasons though, we clearly attempt to provide a general response about the question of the comparative internationalization of family businesses and nonfamily businesses, not a specific determination about Japan. 2. Methodology and data To compare the international strategies of Japanese family and nonfamily businesses, we have drawn, at random, a stratified

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Fig. 1. Conceptual model. Legend: FB = family business, NonFB = nonfamily business, WOS = wholly owned foreign subsidiary.

sample of 759 subsidiaries worldwide of Japanese listed companies, each of which can be identified as family business or nonfamily business subsidiaries. The sample came from the Kaigai Shinshutsu Kigyoˆ Soˆran database (Toˆyoˆ Keizai, 2004), a well-known, widely used directory of Japanese overseas subsidiaries. This directory provides, for each country in the world, a comprehensive list of Japanese subsidiaries, including information about (1) the precise identity of the parent company or different partners, in the case of an international joint venture; (2) the date of establishment, (3) lines of business, including whether the subsidiary conducts manufacturing activities or not; (4) turnover; (5) number of persons employed; and (6) the number of expatriates. We chose the 2004 Toˆyoˆ Keizai, rather than a more recent edition, because we identified the parent companies as family business or nonfamily business according to Kurashina (2003), and using data from similar periods helped us avoid potential bias. To identify companies in Japan as family business or nonfamily business, Kurashina (2003) used various published materials and contacted professionals in the finance industry in Japan, as well as the companies themselves. The identification of family businesses and nonfamily businesses that he provides thus is both unique to and highly reliable for Japan. It should be noted that Kurashina (2003) does not introduce ownership threshold levels, contrary to what is often done in western cases (e.g., Sciascia et al., 2010). One reason in the case of Japan is that most often ownership level of the family is very low, because of significant inheritance taxes typically paid in nature, using stocks (Okumura, 2000). In the case of Japan, Kurashina (2003) insists on the fact that a family being among the main shareholders matters a lot, while ownership level does not matter so much compared to other developed economies. Kurashina (2003) based his family business definition on two criteria: The share of capital held by the family and the involvement of family members in managing the firm. Thus, he considered three types of family businesses:  Type B, in which family members hold management positions or are members of the board of directors, as well as the main shareholders.

 Type C, in which family members do not hold top-ranking management positions but are among the major shareholders.  Type D, in which family members hold top management positions but are not among the major shareholders. Using this definition, Kurashina (2003) found that 42.68% of Japanese listed companies were family businesses at that date, which equaled 1074 companies, 925 of which were type B, 119 type C, and 30 type D. The former are under strong family control (both management and shares), whereas C and D may be regarded as weaker family control types. Because Allouche et al. (2008) have revealed that the level of family control influences the extent to which family business behave differently, we include only the type B subsidiaries in our sample, to reveal clearly the contrasting behaviors and strategic choices between these strong family businesses and nonfamily businesses. This sample of family businesses reflects family involvement (Chua et al., 1999), such that each family business in the sample meets three criteria: The focal family has a substantial ownership stake, maintains a managerial presence in a firm, and has no unilateral control. These large and publicly traded family businesses must, according to the regulations of the Tokyo Stock Exchange, have a ratio of tradable shares (i.e., not owned by the company, officers, or major blockholders) to listed shares that exceeds 30%. Furthermore, we stratify our sample on the basis of country risk level, which constitutes one of the major determinants of strategic international management choices (Beamish, 1985; Brouthers, 1995; Brouthers, Brouthers, & Werner, 2000; Kogut, 1988; Meschi & Riccio, 2008). Several agencies assess country risk, including the French export credit agency (Compagnie Franc¸aise d’Assurance pour le Commerce Exte´rieur, Coface) and, until the end of the 1990s, the Japanese Ministry of Economy, Trade and Industry (METI). Since October 2000, METI and Coface have strengthened their ties, such that as of 2004, METI fully relied on Coface for shortterm risk evaluation (the so-called @rating service, which is available online). Therefore, we use the Coface country risk evaluation for our study as well.

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Table 1 Family and nonfamily business subsidiaries: Distribution according to country risk. Type

Country risk

Risk

1

2

NFBsa

Count % Within type

279 54.8%

133 26.1%

97 19.1%

509 100.0%

FBsb

Count % Within type

158 63.2%

53 21.2%

39 15.6%

250 100.0%

Total

Count % Within type

437 57.6%

186 24.5%

136 17.9%

759 100.0%

a b

Table 2 Family and nonfamily businesses: Nature of subsidiaries according to risk level.

3

Nature of the subsidiary

Total 1

NFBsa FBsb Total

2

NFBs = nonfamily businesses. FBs = family businesses.

NFBs FBs Total

3. Results and discussion We follow the pattern adopted in the ‘‘Background and Hypotheses’’ section and thus consider whether family businesses are more risk averse than nonfamily businesses, followed by the nature of subsidiaries they establish abroad and eventually the possible differences in expatriation policies. Furthermore, we discuss how our findings relate to recent evidence on a nonlinear relationship between family involvement and a firm’s international activities (Sciascia et al., 2010). 3.1. Risk aversion Risk in international business derives from various factors, some related to the foreign environment, as summarized by the country risk concept. Others pertain to the high level of information asymmetry between trading partners. To determine whether Japanese family businesses and nonfamily businesses reveal similar aversion to country risk when they invest abroad, we first adapt the Coface assessment of country risk to a three-point scale, such that our low risk level labeled 1 combines scores of 1 and 2 on the Coface scale, our medium risk level labeled 2 combines scores of 3 and 4 on the Coface scale, and our high risk level labeled 3 combines scores of 5 and 6 on the Coface scale. The distribution of subsidiaries from our sample onto this scale reveals a significant difference (8.9%, Chi-square test) between family businesses and nonfamily businesses, which we summarize in Table 1. At the threshold of 10%, which is acceptable in exploratory approach2, we find significant risk aversion differences between family businesses and nonfamily businesses, in support of H1. Specifically, family businesses are more risk averse, in that 63.2% of family businesses subsidiaries in our sample function in low risk countries, compared with 54.8% of the nonfamily business subsidiaries. In contrast, only 21.2% of family business subsidiaries (26.1% of nonfamily businesses) appear in medium risk countries, and 15.6% of family businesses (19.1% of nonfamily businesses) are in high risk countries. In short, it appears that family owners prefer to avoid a strategic choice of extending into high risk countries. 3.2. The nature of subsidiaries abroad The country risk level should affect the kind of subsidiaries firms establish abroad, whether wholly owned foreign subsidiaries or joint ventures, and in the case of joint ventures, it should influence whether the firms hold majority or minority shares of capital (Abdellatif, 2007; Beamish, 1985; Brouthers, 1995; Brouthers, Brouthers, & Werner, 2002; Delios & Henisz, 2000, 2003; Kogut, 1988). In addition, because Japanese businesses often 2 Exploratory, here, means that this result should be interpreted with some care. Working with a larger sample in future research may allow confirmation at a better significance threshold (5%, or preferably 1% for instance).

3

NFBs FBs Total

a b

Joint venture

Wholly owned

Total

Count % Within NFBs Count % Within FBs Count % Within total

72 25.8% 26 16.5% 98 22.4%

207 74.2% 132 83.5% 339 77.6%

279 100.0% 158 100.0% 437 100.0%

Count % Within NFBs Count % Within FBs Count % Within total

56 42.1% 13 24.5% 69 37.1%

77 57.9% 40 75.5% 117 62.9%

133 100.0% 53 100.0% 186 100.0%

Count % Within NFBs Count % Within FBs Count % Within Total

37 38.1% 12 30.8% 49 36.0%

60 61.9% 27 69.2% 87 64.0%

97 100.0% 39 100.0% 136 100.0%

NFBs = nonfamily businesses. FBs = family businesses.

perceive the involvement of a Soˆgoˆ Shoˆsha as a good way to manage country risk (Abdellatif, 2006; Jaussaud, 1999; Miyashita & Russel, 1994), we consider whether Japanese family businesses and nonfamily businesses resort to Soˆgoˆ Shoˆsha to different extents when expanding abroad. In Table 2, we summarize the distribution of family business and nonfamily business subsidiaries between joint ventures and wholly owned foreign subsidiaries at each level of risk. For all risk levels, both forms favor wholly owned foreign subsidiaries over joint ventures, likely because wholly owned foreign subsidiaries are easier to control and facilitate decision making (Beamish, 1993; Delios & Beamish, 1999; Jaussaud & Schaaper, 2006; Padmanabhan & Cho, 1999). Yet risk still matters, in that both types of business resort more to joint ventures when the risk level increases. For low risk countries (level 1), 83.5% of the family business subsidiaries in our sample use wholly owned foreign subsidiaries, versus 74.2% of the nonfamily businesses (significant at .024, Chi-square test). In intermediary risk countries (level 2), 75.5% of the family business subsidiaries use wholly owned foreign subsidiaries, compared with 57.9% of nonfamily business (significant at .025), perhaps as a consequence of family businesses’ stronger inclination toward independence. However, when risk is high, the difference is no longer statistically significant at 5% or even 10%; both family businesses and nonfamily businesses use wholly owned foreign subsidiaries approximately 42% of the time. That is, when risk is high in a given country, a family business and an nonfamily business make similar choices with regard to establishing a joint venture versus a wholly owned foreign subsidiary. We consider H2a validated for high levels of risk. For our test of H2b, we turn to Table 3, in which we compare family businesses’ and nonfamily businesses’ use of Soˆgoˆ Shoˆsha to establish subsidiaries abroad. The Chi-square test is significant at a threshold of .001 and indicates that family businesses resort less to Soˆgoˆ Shoˆsha than do nonfamily businesses, in support of H2b. This result may indicate family businesses’ strong inclination to remain independent, though it also could reflect that nonfamily businesses often are keiretsu members, which means they are already close to a Soˆgoˆ Shoˆsha (Jaussaud, 1999). In addition, we conduct an exploratory investigation into whether the risk level affects recourse to Soˆgoˆ Shoˆsha by subsidiaries of family business and nonfamily business differently (Table 4).

M. Abdellatif et al. / Journal of Family Business Strategy 1 (2010) 108–116 Table 3 Involvement in Soˆgoˆ Shoˆsha by family versus nonfamily business subsidiaries. Soˆgoˆ Shoˆsha

Type

No

Yes

Total

NFBsa

Count % Within type

384 75.4%

125 24.6%

509 100.0%

FBsb

Count % Within type

226 90.4%

24 9.6%

250 100.0%

Total

Count % Within Type

610 80.4%

149 19.6%

759 100.0%

a b

NFBs = nonfamily businesses. FBs = family businesses.

Table 4 Involvement in Soˆgoˆ Shoˆsha by family versus nonfamily business subsidiaries according to risk level. Soˆgoˆ Shoˆsha

Risk

1

NFBs FBs Total

2

NFBs FBs Total

3

NFBs FBs Total

No

Yes

Total

Count % Within NFBs Count % Within FBs Count % Within total

232 83.2% 148 93.7% 380 87.0%

47 16.8% 10 6.3% 57 13.0%

279 100.0% 158 100.0% 437 100.0%

Count % Within NFBs Count % Within FBs Count % Within total

83 62.4% 47 88.7% 130 69.9%

50 37.6% 6 11.3% 56 30.1%

133 100.0% 53 100.0% 186 100.0%

Count % Within NFBs Count % Within FBs Count % Within total

69 71.1% 31 79.5% 100 73.5%

28 28.9% 8 20.5% 36 26.5%

97 100.0% 39 100.0% 136 100.0%

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resources become less scarce in developing countries, risk in itself becomes a more crucial issue. The Kruskal–Wallis test in Table 5 thus reveals a negative relation between expatriation and risk (significant at .001), particularly in the comparison of a low level versus the intermediate and high levels. In Table 6, we compare the average number of expatriates sent by family businesses and nonfamily businesses at each level of risk; the differences for each risk level are not significant. Regarding expatriation, we find no significant difference between family and nonfamily businesses, whatever the level of country risk. Thus, we must reject H3. This result seemingly contradicts extant literature that suggests that family businesses are more risk averse than are nonfamily businesses. However, prior research tends to focus mainly on financial risk (Mishra & McConaughy, 1999; Ward, 1988). This aversion to financial risk relates to the long-term orientation of the shareholders, who are anxious to preserve the family inheritance for following generations. However, such an aversion to risk does not necessarily translate into all fields of business, including, in our case, human resource management or risk management through expatriation. On the basis of so-called extended paternalism from family to nonfamily members (Lee, 2006, Sciascia, 2010), we assumed that family businesses tend to send less expatriates to a given country, compared to nonfamily businesses (H3). However, over the last two decades, businesses have reassessed the cost of expatriation and various risks that expatriates personally face (Abdellatif, 2007). As a consequence, all kinds of businesses have carefully reconsidered expatriation policies, which may explain why no difference appears between family and nonfamily businesses. 3.4. Family involvement

The Chi-square test again is highly significant for risk levels 1 (.002) and 2 (.001), but it is not significant for risk level 3 (31.8%). That is, family businesses resort less to Soˆgoˆ Shoˆsha than do nonfamily businesses when the risk level is not too high, possibly because of their strong inclination to remain independent. However, when risk increases, it becomes the primary decision determinant, and family businesses turn to Soˆgoˆ Shoˆsha more often to exploit their expertise and mitigate risk. 3.3. Expatriation policies As frequently noted in prior literature (Boyacigiller, 1990; Chung & Beamish, 2005; Delios & Bjo¨rkman, 2000), country risk affects expatriation through several channels. As qualified human

In their review of the literature on international entrepreneurship, Sciascia et al. (2010) highlight the fact that only a few studies distinguished the effects of family ownership from those of family involvement. Their study shows that family ownership may have both positive and negative effects on the identification and exploitation of international entrepreneurship opportunities. Stewardship and stagnation are used as theoretical bases for this conclusion (Sciascia et al. 2010). The authors found a nonlinear relationship between family ownership and international entrepreneurship. As explained in our sample description, ownership threshold is not taken into account in our research, as it is not of primary importance in the Japanese context, according to Kurashina (2003). However, our results can be interpreted on the basis of the same academic literature as the one Sciascia et al. (2010) refer to, particularly the argument based on stewardship theory. Stewardship in family business manifests itself in stewardship over continuity, employees, and customers (Miller et al., 2007). As H1 and H2 have been at least partially validated, but not H3 regarding expatriation, stewardship over continuity

Table 5 Expatriation related to country risk, combined sample. Number of expatriate employees 0 Country risk

1 2 3

Total

Total

1–2

3–5

6–10

Count % Within country risk Count % Within country risk Count % Within country risk

70 16.8% 49 27.1% 14 14.1%

196 47.0% 86 47.5% 49 49.5%

109 26.1% 34 18.8% 30 30.3%

42 10.1% 12 6.6% 6 6.1%

417 100.0% 181 100.0% 99 100.0%

Count % Within country risk

133 19.1%

331 47.5%

173 24.8%

60 8.6%

697 100.0%

M. Abdellatif et al. / Journal of Family Business Strategy 1 (2010) 108–116

114

Table 6 Expatriation Related to Country Risk, Family Versus Nonfamily Business Subsidiaries. Risk

1

Number of expatriate employees

Type of business

NFBs FBs

Total 2

Type of business

Count % Within type of businesses NFBs FBs

Total 3

Type of business

Count % Within type of businesses NFBs FBs

Total

Count % Within type of businesses

Count % Within Count % Within 70 16.8% Count % Within Count % Within 49 27.1% Count % Within Count % Within 14 14.1%

type of businesses type of businesses

type of businesses Type of businesses

type of businesses type of businesses

more than over employees seems to have discriminating effects in comparison to nonfamily businesses. Our results are also consistent with Zahra (2003) who argues that the positive effect of family ownership is reinforced when family members also participate in the management of the business. The author states that when family members are involved in management, they may approach internationalization with caution. These individuals may seek maximizing revenues from foreign markets rather than aggressively pursuing internationalization (Zahra, 2003). This is consistent with H1 and H2 being validated for the first one, and partially validated for the second one. Finally, our results are in line with Sirmon David et al.’s (2008) proposal that family influence might give rise to the ‘‘best of both worlds,’’ where management harnesses the advantages of family involvement (e.g., though patient capital) while avoiding its disadvantages (e.g., myopic traditions) by allowing ‘‘other voices at the table’’ (Sirmon David et al., 2008, p. 980). 4. Conclusion We investigated the internationalization strategies of family businesses compared with those of nonfamily businesses in the context of Japan. Because this research area is somewhat neglected (Crick et al., 2006; Graves & Jill, 2008), our approach necessarily is exploratory in nature. We focus on Japanese listed firms, for which we have relevant and reliable data (Kurashina, 2003; Toˆyoˆ Keizai, 2004), and produce two main results. First, family businesses establish fewer joint ventures than do nonfamily businesses, in relative terms, and resort less to Soˆgoˆ Shoˆsha. This result is consistent with the claim that family businesses exhibit a stronger inclination to maintain their independence than do nonfamily businesses. Second, we find that expatriation policies do not differ significantly between family businesses and nonfamily businesses, in contrast with our a priori expectations. More broadly, we confirm that the differences in strategic behavior that mark family businesses and nonfamily businesses do not appear in every aspect of their internationalization processes. Ownership by a family group clearly influences a firm’s strategic choices, particularly when those choices may influence its independence. However, not every management decision seems to depend on whether the business is owned by a family or not. When the firm experiences significant pressure, such as that due to

Total

0

1–2

3–5

6–10

44 16.4% 26 17.7% 195 46.9% 34 26.4% 15 28.8% 86 47.5% 11 14.9% 3 12.0% 49 49.5%

121 45.0% 74 50.3% 109 26.2% 63 48.8% 23 44.2% 34 18.8% 39 52.7% 10 40.0% 30 30.3%

70 26.0% 39 26.5% 42 10.1% 25 19.4% 9 17.3% 12 6.6% 21 28.4% 9 36.0% 6 6.1%

34 12.6% 8 5.4% 416 100.0% 7 5.4% 5 9.6% 181 100.0% 3 4.1% 3 12.0% 99 100.0%

269 100.0% 147 100.0%

129 100.0% 52 100.0%

74 100.0% 25 100.0%

high risk in a given country, its strategies for establishing subsidiaries likely are similar, whether it is a family business or nonfamily business. Similarly, expatriation strategies appear unaffected by the type of firm, family or nonfamily business. Thus, we extend prior academic literature that aims to identify precisely which management decisions depend on family ownership, which do not, and why. As we show, such an approach also is relevant with regard to the specific issue of firms’ internationalization. However, our research is not free from limitations. First, our findings are based on a limited set of variables. Therefore, we call for future research from this perspective to further clarify how family businesses versus nonfamily businesses go about their internationalization. Toward this aim, in-depth interviews in some carefully selected enterprises, in Japan and elsewhere, may help us to better understand which variables in the internationalization process may be affected, and which may not, whether the firm is or is not a family business. Another limitation of the study consists in the fact that we were not able to specify threshold levels of family influence and therefore had to limit our analyses to specific types of family businesses. While this approach is acceptable in a Japanese context (Kurashina, 2003), such as ours, future research should incorporate continuous measures of family influence, such as the F-PEC scale (Klein et al., 2005). A continuous measure of family influence would also allow further differentiating among the large group of family businesses and making comparisons within this group as well as between this group and their nonfamily counterparts. A third limitation refers to the geographic scope of our study. Data were collected exclusively in Japan, introducing a potential cultural bias and limiting the generalizability of our findings to other countries. Future research should be conducted in countries other than Japan to assess the internationalization strategies of family businesses. In conclusion, our research has found that family businesses establish relatively fewer joint ventures and resort relatively less to using general trading companies than nonfamily businesses. Family businesses’ need for independence appears to be an important motive for this distinct behavior. However, contrary to our conjecture, family businesses do not differ significantly from nonfamily businesses when it comes to expatriation policies. Hence, we encourage fellow researchers to further investigate the internationalization process of family businesses, which will contribute to a better understanding of their strategic behavior in the global marketplace.

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