Learning from overseas venturing experience

Journal of Business Venturing 17 (2002) 21 – 40

Learning from overseas venturing experience The case of Chinese family businesses Eric W. K. Tsang* Nanyang Business School, Nanyang Technological University, Mailbox No. B1A-08, Singapore 639798, Singapore Received 1 March 1999; received in revised form 1 December 1999; accepted 1 January 2000

Abstract This paper examines the foreign direct investment (FDI) behavior of Chinese family businesses (CFBs) from an organizational learning perspective. The discussion is based on a comparative case study of CFBs and non-CFBs in Singapore with respect to their investments in China. Compared with non-CFBs, CFBs generally use an informal and unstructured approach to FDI. They tend to send family members overseas to be in charge of key management positions. Owing to the highly centralized management control and strategic decision making of a CFB, strategic experience gained from an FDI process is largely held within the family, particularly the head of family. D 2001 Elsevier Science Inc. All rights reserved. Keywords: Overseas venturing experience; Chinese family businesses; Foreign direct investment; Management control; Decision making

1. Executive summary Kao (1993) argues that privately owned Chinese companies, most of which are located outside mainland China itself, make up the world’s fourth economic power after North America, Japan and Europe. Many of these companies are in the form of Chinese family business (CFB) where ownership and managerial control are both concentrated within a single family. Starting from a humble domestic base, some CFBs have become sprawling multinational corporations (MNCs). With world markets rapidly merging, competition has * Fax: +65-791-3697, +65-793-4206. E-mail address: [email protected] (E.W.K. Tsang). 0883-9026/00/$ – see front matter D 2001 Elsevier Science Inc. All rights reserved. PII: S 0 8 8 3 - 9 0 2 6 ( 0 0 ) 0 0 0 5 2 - 5

22

E.W.K. Tsang / Journal of Business Venturing 17 (2002) 21–40

increasingly spread across national borders. To survive such competition, more and more CFBs are expected to expand overseas for exploring new opportunities and leveraging their strengths. The purpose of this paper is to examine the foreign direct investment (FDI) behavior of CFBs from an organizational learning perspective. This topic, with both theoretical and practical significance, has been neglected by researchers. A comparative case study approach was adopted. A total of 10 indigenous Singapore companies were studied with respect to their investments in China. A key finding of this study is that CFBs and non-CFBs are only exceptionally an either–or matter; rather, the two form a continuum of degrees. There are companies that possess only some of the characteristics of a typical CFB, and they are called semi-CFBs in this paper. The 10 cases consist of three CFBs, three semi-CFBs, and four non-CFBs. The FDI behavior of the CFBs is contrasted with that of the other two groups, especially the non-CFBs. The results indicate that CFBs and non-CFBs have distinctly different approaches to dealing with FDIs. The approach adopted by semi-CFBs is somewhat in between. During the preliminary stage of evaluating an FDI project, CFBs tend to have a less formal and structured way of collecting information and conducting analysis than non-CFBs. The negotiating team of a CFB usually consists of the boss (normally the head of family) and his immediate family members while that of a non-CFB is often larger and consists of various functional managers. CFBs tend to assign family members to be in charge of key expatriate positions. Non-CFBs often rotate their expatriate managers systematically. As to the communication between headquarters and overseas operations, CFBs rely heavily on their bosses’ visits to these operations while non-CFBs rely more on detailed written reports submitted by the operations. The visits made by the boss of a CFB also have control and networking purposes. The two different FDI approaches have important implications for organizational learning. Strategic experience is largely maintained within the family (particularly the boss) of a CFB because of its highly centralized management control and strategic decision making. Since ownership and management control are both concentrated within the family, the danger of knowledge erosion due to personnel turnover is small. However, a sudden and unexpected loss of key family members can have a detrimental impact on the knowledge base of a CFB. Compared with CFBs, non-CFBs exhibit better sharing and institutionalization of FDI experience, and more of their knowledge is stored in the non-human component of organizational memory. This study confirms the distinct characteristics of CFBs discussed in literature. More important, it shows how these characteristics influence the learning behavior of CFBs. This paper supports Shrivastava’s (1983) contention that firms exhibit rather distinct learning behavior. As such, different methods are required to improve their learning styles (Tsang, 1997). Organizational learning consultants need to take note of this fact when making recommendations to their clients.

2. Introduction It is said that privately owned Chinese businesses, most of which are located outside mainland China itself, make up the world’s fourth economic power after North America,

E.W.K. Tsang / Journal of Business Venturing 17 (2002) 21–40

23

Japan and Europe (Kao, 1993). Chinese entrepreneurs have been dominating the economies of Hong Kong, Taiwan, Singapore, and most other Southeast Asian countries. Nine out of every 10 billionaires in Southeast Asia are ethnic Chinese (Weidenbaum, 1996). Most of these companies are in the form of CFB where ownership and managerial control are both concentrated within a single-family unit. With the implementation of economic reforms since 1978 in China, there is enormous potential for CFBs to grow in this socialist country. A largescale survey of private enterprises in China during 1993 found that family management was a common practice among the respondents (Li, 1994). Whyte (1996) argues that the entrepreneurial behavior expressed by Chinese families in general is at least part of the driving force behind China’s dramatically improved economic performance. If the Chinese government allows the private sector to grow at the present pace, CFBs may one day become a major form of business organizations in China. Starting from a humble domestic base, some CFBs have become sprawling MNCs. Prominent examples include Hutchison Whampoa of Hong Kong, the Salim Group of Indonesia, Hotel Properties of Singapore, Formosa Plastics of Taiwan, and the Charoen Pokphand Group of Thailand. While some CFBs may be content to operate in a small domestic scale, it is expected that more and more CFBs will expand overseas because of the rapidly merging world markets. It is increasingly difficult for companies to protect their domestic markets from intrusion by foreign competitors, which may bring along cutting-edge technologies and huge amounts of capital. To survive such competition, it is not good enough for a company to just defend its domestic frontier; to leverage its strengths overseas is imperative. The purpose of this paper is to examine the FDI behavior of CFBs from an organizational learning perspective. This topic, with both theoretical and practical significance, has been neglected by researchers. The discussion is based on a comparative case study of CFBs and non-CFBs in Singapore with respect to their FDIs in China. This paper is organized in the following manner. The next section briefly describes the nature of CFBs. It is followed by a discussion of the internationalization process from an organizational learning perspective. This section serves as a theoretical backdrop for the paper. Then the research methodology is presented. The rest of the paper discusses the results of the comparative case study. The paper ends with some concluding remarks.

3. Chinese family business When discussing the methodological issues in studying family businesses, Handler (1989) comments that one of the challenges is to determine the criteria by which a business enterprise can be classified as a family firm. Family business researchers are confronted with definitional confusion (Brockhaus, 1994). In response to this challenge, Litz (1995) adopts two complementary approaches to conceptualizing the family firm. The first approach is structure-based, considering family involvement in firm ownership and management. This approach is in line with the conventional definition for a family business. The second approach is intention-based, focusing on management’s intent to maintain or increase intraorganizational family involvement. Since it may be difficult and sensitive in empirical studies to ascertain the management’s intent with respect to the degree of intra-organizational family

24

E.W.K. Tsang / Journal of Business Venturing 17 (2002) 21–40

involvement, the structure-based approach is used in this study. Similar to the definition adopted by Gallo and Sveen (1991), a family business is here defined as one where a family owns the majority of stock and exercises full managerial control. Family members form the core of the management team and make the most important decisions concerning the business. Research on CFBs is overshadowed by studies of Japanese and American management styles, and has not received its fair share of attention in proportion to the significance of CFBs in the business world. Studies of CFBs as a whole have been fragmented although the situation has been improving. Some studies compare CFBs with other Asian business systems such as Japanese enterprises and Korean chaebol (e.g., Hamilton and Biggart, 1988; Chau, 1991; Whitley, 1992). Others focus on CFBs alone (e.g., Limlingan, 1986; Redding, 1990; Hodder, 1996; Weidenbaum and Hughes, 1996). In the particular case of Singapore CFBs, there are two detailed studies, namely Lee (1987) and Chan and Chiang (1994). Since a CFB is essentially a family possession, top management positions are filled by close family members with the head of family assuming the overall command. Non-family members have to serve the company for a long time before they would be trusted and promoted to senior or top management positions. Managerial ideology is shaped by Chinese cultural values such as clear hierarchy, reciprocal vertical obligation, benevolent autocracy, and so on. Authority and control are highly centralized. Decisions are made by the more senior managers with little participation from their subordinates, and making strategic decisions is normally a family affair behind closed doors. The internal system of coordination and control is highly personal. Tight control is exerted on financial and production management. In dealing with the external environment, CFBs make use of extensive networking and relational contracting (Redding, 1990). These networking activities also enable a CFB to transcend its own limitation of scale through obtaining access to resources owned by other network members (Powell, 1990). There are three main features of CFBs that distinguish them from other family firms. The first two are Chinese managerial ideology and extensive networking behavior mentioned above (see Wong et al., 1992; Hwang, 1995; Hamilton, 1996). The third feature is the way of business succession. The legitimate heirs of a CFB are usually the owner’s sons, who have equal rights of inheritance. This practice of business succession has a disintegrative effect on the family firm (Wong, 1985). With the exception of Weidenbaum and Hughes (1996), most of the above mentioned studies have concentrated on the domestic operation of CFBs. Although Weidenbaum and Hughes’s (1996) study sheds light on the networking behavior of some well-known CFBs, their practitioner-oriented approach gives a strong sense of journalism. In short, the FDI behavior of CFBs has not been systematically studied. It is expected that the present study will make up for this shortcoming and contribute to the advancement of CFB theories. The next section discusses the internationalization process from an organizational learning perspective.

4. Learning from overseas venturing experience Owing to limitation of space, this section does not offer a detailed examination of the concept of organizational learning. Excellent literature reviews on the subject can be found in

E.W.K. Tsang / Journal of Business Venturing 17 (2002) 21–40

25

Hedberg (1981), Levitt and March (1988), and Huber (1991). The purpose of this section is to discuss the issue of organizational learning in the context of internationalization. Firms become MNCs by setting up manufacturing or marketing subsidiaries overseas. Some researchers argue that internationalization is a process of transferring an MNC’s knowledge, which embodies its advantage, from one country to another (Kogut and Zander, 1993). That is, knowledge flows from headquarters to overseas subsidiaries. However, knowledge may also flow in the opposite direction; in the process of establishing and running its overseas operations, an MNC learns, intentionally or unintentionally, from the process. For example, Chang’s (1995) study examined the sequential entry process of Japanese electronic manufacturing firms into the United States and found that these firms first entered their core businesses. Nevertheless, learning from early entries enabled them to launch further entries into non-core businesses and into areas of weaker competitive advantage. A study of four joint venture sophisticated firms found that what the firms had learned from their experience led to more effective management of joint ventures (Lyles, 1988). Similarly, Harrigan (1985) maintains that there is an experience curve effect associated with the management of joint ventures. These studies indicate that an MNC in fact learns from its FDI activities. A simple, and somewhat common sense, premise is that the organizational memory of an MNC changes after it has established a foreign subsidiary. The term ‘‘organizational memory’’ refers to the stored information generated from an organization’s history that may affect its future decisions (Walsh and Ungson, 1991). Basically there are two types of storage bins: human and non-human. Individuals in an organization retain information through their own direct experiences and observations. They also bring along their knowledge from one organization to another. Organizations frequently increase their knowledge base by recruiting new members. Non-human storage bins have many different forms and vary in terms of sophistication. The list includes regulations, rules, operating procedures, organizational charts, reports, memos, computer software, and so on. To make the classification simple and practical for the purpose of empirical research, anything that is in the man’s mind or memory is considered here as being kept in the human storage bin. Organizations can only learn through their staff members as ‘‘all learning takes place inside individual human heads’’ (Simon, 1991, p. 125). Managers who are directly involved in a firm’s FDI activities are important agents of learning. They include people who conduct feasibility studies, negotiate with potential partners and host governments, and those who are assigned to overseas operations. What these managers learn may not benefit their companies if their knowledge is only kept within their heads. To elevate learning from an individual to an organizational level, knowledge diffusion is required. One way of diffusing knowledge is to encourage organizational members to interact and share their experiences together. In Japanese companies, the principle of experience sharing is further developed to become redundancy of information, which refers to the existence of information more than the specific information required immediately by each organizational member. Nonaka and Takeuchi (1995) argue that this sharing of extra information between individuals promotes the sharing of individual tacit knowledge. Institutionalization of experience is another way of diffusing knowledge within an organization. Though FDI experience gained by a manager usually contains a significant

26

E.W.K. Tsang / Journal of Business Venturing 17 (2002) 21–40

tacit element, it may be possible to codify part of the experience or to convert it into operational rules and procedures. In studying processes of innovation at Texas Instruments, Jelinek (1979) argues that the processes have to be institutionalized in order that they can be readily replicated. Once institutionalized, these processes transcend the individual and are accessible to others in the organization. Likewise, when FDI experience is institutionalized, it is easier for members of the organization to gain access to the experience, resulting in better experience sharing. In a sense, institutionalization of experience is a process of transferring information from a human storage bin to a non-human one. This section provides a theoretical backdrop for the rest of the paper. The next section presents the research methodology used in this study.

5. Methodology Case studies of 10 indigenous Singapore companies conducted by the author in 1995 and early 1996 are presented in this paper. Semi-structured interviews were first held in Singapore with managers who were in charge of their companies’ investments in China. Then, through their introductions, some of the China operations (including joint ventures and wholly owned subsidiaries) of the cases were visited, and the expatriate and local managers there were interviewed. The total number of interviewees was 60. The number of managers contacted in each case varied from 2 to 10, depending on the extent of access allowed. It was fortunate that the author interviewed the most knowledgeable person in nearly every case. In Singapore, the key informants carried the titles of chairman, managing director, business development director, general manager, vice president, senior manager, and business development manager. In China, the author could gain access to either the general manager or the deputy general manager in all the cases. More important, with two exceptions, the author managed to talk to the family member who was in charge of the overall operation for all the family-owned case companies. This person is usually the head of family, a male, and referred to as ‘‘the boss’’ (or laoban in Chinese) by non-family members of the company. Interviews with the bosses of CFBs are crucial as nearly all key decisions are made by them.

6. Results 6.1. Profile of the cases This study was limited to manufacturing industries in order to minimize extraneous variation that might arise from differences between the service and manufacturing sectors. Table 1 presents the profile of the 10 cases. The six family-related cases consist of first- and second-generation family firms. As there are not many indigenous MNCs in Singapore, the characteristics of some of the cases have to be stated in brief and general terms in order to protect their identities. The fifth column shows the number of foreign countries (including China) in which these companies had operations. For this purpose, Hong Kong is

E.W.K. Tsang / Journal of Business Venturing 17 (2002) 21–40

27

Table 1 Profile of the cases Case company CFB1 CFB2 CFB3 Semi-CFB1 Semi-CFB2 Semi-CFB3 Non-CFB1 Non-CFB2 Non-CFB3 Non-CFB4

Industry electronics industrial equipment paper industrial equipment electronics machinery food and beverages food and beverages conglomerate construction materials

Number of employees in Singapore

Number of employees worldwide

Number of foreign countries invested

Years of FDI experience in China

Performance in China good poor

170 80

>3000 650

3 3

>10 3

90 80

500 550

2 2

9 2

satisfactory poor

600 120 500

>3000 300 >3000

2 1 >5

10 3 8

satisfactory good good

430

2000

4

4

poor

>1000 >1000

>3000 >3000

>5 >5

7 2

satisfactory good

considered as a separate country because its institutional environment is very different from that of China. A key finding of this study is that CFBs and non-CFBs are only exceptionally an either–or matter; rather, the two form a continuum of degrees. This issue has seldom been addressed by present CFB studies. As argued by Wong (1985, p. 59), ‘‘it is possible for a family-owned firm to be impersonal and universalistic in its internal administration.’’ For the present study, the meager number of interviews in each case makes it difficult to assess whether a familyowned firm possessed the major characteristics of a CFB. Two expedient criteria are used to roughly identify the position of a case on the CFB and non-CFB continuum. The two criteria correspond to the management component of the definition of a family business stated earlier. The first one is the number of close family members who take part in management. The second is the degree of centralized decision making and authority. These two are combined with the general impressions obtained from the interviews. Among the cases, only three fit in with the stereotype of a traditional CFB. They are CFB1, 2 and 3. The controlling shares of each of these three companies were held by a Chinese family. At the same time the business was managed by three or more close family members with a high degree of centralization of authority. There are some marginal cases and they are called semi-CFBs in this study. For instance, semi-CFB1 was owned by a Chinese family. The chairman of the board of directors was the father, who had retired from day-to-day operation. The company was managed by two of his sons, both in their 50s. The third generation of family members were still rather young, attending schools and universities. The general manager of the company, who was a non-family member, mentioned that the two brothers ran the company in a fair and professional way. He himself was involved in making important strategic decisions of the company. Another example is semi-CFB2. The chairman was the father of the family and his son was in charge of marketing. All the other senior

28

E.W.K. Tsang / Journal of Business Venturing 17 (2002) 21–40

positions were held by non-family members. The top management adopted a group decision process involving both family and non-family members. In the process, they tried to arrive at a consensus. However, the above two cases retained some rudiments of a CFB. A case in point is seniority-based promotion and the long period of time required to build up trust in an employee. Even if it is possible for non-family members, or wairen (outsiders) as they are usually called in Chinese, to be accepted into the inner circle, it takes many years for it to happen. It is rare for a CFB to recruit a top management position through a headhunter. The general manager of semi-CFB1, for instance, had worked in the company for 26 years. Owing to the distinct differences between CFBs and semi-CFBs, it would be more appropriate to separate the two groups when analyzing their FDI behavior. The majority shareholders of the four non-CFBs were non-family institutions. These four companies were run by professional managers without any family relationships. Non-CFB3 had a divisional corporate structure and only the industrial division of the company participated in this study. As shown in Table 1, the non-CFBs were generally larger in terms of employment and had more FDI experience than the other six cases. A caveat is that firm size may be a confounding factor in this study. The famous Aston study of organization structure conducted in the 1960s and 1970s clearly shows that firm size is an important factor affecting organization structure variables. As an organization grows in size, there will be a greater degree of differentiation between job types and functions. The limit of span of control implies that more hierarchical levels are required. To ensure uniform practices, a large number of written procedures and regulations are gradually established. This is followed by decentralization of decision making. So the centralization of authority and control in the three CFBs might be partly due to their small size. This important issue will be discussed below. 6.2. Overview of their investments in China Singapore is a latecomer to the China investment arena. Most indigenous companies started to invest in China only in the early 1990s after Singapore established diplomatic ties with China in 1990. Despite this, CFB1, CFB3, and semi-CFB2 set up their first FDIs in China in the mid-1980s, less than a decade after China adopted her open-door policy (Table 1). Compared with the present, the investment climate at that time was less friendly toward foreign investors and the legal infrastructure was less developed. Managers of the three companies took pride in the fact that they were among the first group of Singapore investors in China. On the one hand, they faced many difficulties and experienced great frustrations during their early years in China. On the other hand, they learned a great deal during this hardship period and being early movers, their guanxi (or, close connection) networks in China were stronger and more extensive than those of other Singapore companies that entered China in the early 1990s. The cases had three main objectives with respect to investing in China. Firstly, they were attracted by the huge domestic market and hoped that their products could capture a significant share of the market one day. Secondly, they wanted to establish a business presence and hence gain strategic positions vis-a-vis their competitors. The third motive was

E.W.K. Tsang / Journal of Business Venturing 17 (2002) 21–40

29

to take advantage of the lower labor cost in China. (The rising wage level in Singapore has been adversely affecting the competitiveness of locally manufactured products.) The cases generally had a long-term perspective in China. None of them expected to reap quick profits. Most of the China investments of the cases were located in coastal provinces, and had operated for only a few years at the time of interview. As such, these investments were still in their early stage of development and few of them were profitable financially. The last column of Table 1 shows each case’s overall assessment of the performance of its operations in China. Taking a long-term view, the cases tended to evaluate these investments in terms of how far they were established properly and operated on the right track. They paid more attention to operational rather than financial objectives. Their focus was on transferring their systems and ways of doing things to China, as well as recruiting and training a core team of mainland Chinese managers. With three exceptions, the cases were satisfied with their investments in China. The less satisfied cases, such as semi-CBF1, were usually having problems in collaborating with their Chinese partners or in managing local employees. For the few investments that had been in operation for more than 5 years, their management systems were well established. Their Singapore parent companies’ attention shifted to further improving their operational efficiency and achieving better financial results. Generally speaking, the performance of these investments was satisfactory and some of the initial investment objectives were achieved. For instance, the main objective of CFB1 in setting up its first China operation in 1985 was to lower the labor cost of production. At the time of interview, the factory had very successfully met this objective. CFB1 later established two similar factories in different Chinese cities and the productivity of the first one was used as a benchmark for the other two to follow. The other cases that had more than one operation in China also found that the older operations usually had better performance. It seems that the experience accumulated within an operation constitutes a learning effect. Another notable result is that, as shown in Table 1, the performance outcomes were evenly distributed among the three categories. That is, there was no relationship between ownership and performance. The following sections present the results of the case studies with respect to the major aspects of investing in China from an organizational learning perspective. Emphasis will be placed on comparing the three CFBs with the four non-CFBs. 6.3. Information collection and analysis When an MNC considers investing in a foreign country, the first step is information collection and analysis. The approach to handling this step can be analyzed in terms of two dimensions. The first is the degree of formalization; that is, how far the information collected is written down and presented in a standardized and organized way. The second dimension concerns the extent to which the approach is structured. A structured approach has a welldefined sequence of steps. A key factor determining whether the information is collected and analyzed in a formal and structured manner is the person responsible for the task. A foreign investment project has to be approved by the board of directors. Many of the directors, such as the managing director, are involved in daily operations. If the task of data collection and analysis is conducted by organizational members below the director level, a formal

30

E.W.K. Tsang / Journal of Business Venturing 17 (2002) 21–40

investment proposal with detailed analysis usually needs to be submitted to the board for consideration. The information is thus presented in a well-structured format. Firm size and project size are obviously important issues here. Directors of a small company are likely to be involved in the details of every investment project. Similarly large projects that siphon off substantial company resources catch the personal attention of the managing director and other executive directors. The company’s nature of ownership is also a significant issue. There was a marked difference between the CFBs and the non-CFBs. The former adopted an informal and unstructured approach. This is understandable because the boss and other family members were personally involved in the project and they were the decision-makers as well. There was no point in spending time on working out a wellwritten investment proposal. Feasibility studies, if any, were usually produced to satisfy the requirements of government bodies and bankers. CFB1 had more than 10 investments in China. The boss handled every project personally although he employed a personal assistant (a non-family member) to gather information at the initial stage. He also gathered information from his friends and relatives. This personal network kept him informed of current market changes and new investment opportunities. The final analysis was done by himself, his wife and the managing director (his old classmate). Other senior managers of the company knew very little about the projects in China. His assistant described him as using his sixth sense in making decisions. Modern investment analysis methods such as discounted cash flows were not in his mind. However, the function of intuition in strategic decision making should not be understated. As Eisenhardt (1989, p.555) writes, ‘‘executives who attend to real-time information are actually developing their intuition. Aided by intuition, they can react quickly and accurately to changing stimuli.’’ Similarly, the boss of CFB2, and sometimes together with his brother, dealt with all the company’s investments in China. There was simply no need to go through an extra step of formalization. As far as information collection and analysis is concerned, the three semi-CFBs tended to behave like the CFBs. For instance, the boss of semi-CFB3 and two of his subordinates (nonfamily members) visited several Chinese cities and investigated the investment environments there. They discussed the pros and cons of each city. But the whole process was informal and not structured. The four non-CFBs, on the other hand, used a more structured approach. All of them had to submit a formal investment proposal enclosing a feasibility study to the board for discussion. Board members were seldom personally involved in formulating the proposals. Sometimes the managers responsible for a project had to give presentations to the board and answer board members’ queries. As such, intuition was not an acceptable reason for or against a project. Before submitting a proposal to the board, there were usually thorough discussions among the senior management in order to reach a consensus and to polish the proposal. This helped the sharing of experience within the management team. A typical example is non-CFB4. The company had a corporate development department responsible for planning and evaluating most of the investment projects of the company. There was a set of guidelines for project evaluation. The guidelines were generated from staff discussions and were generalizations of their experience. Since there were only five staff in the department, there was no urgent need to put the guidelines into a written form. The

E.W.K. Tsang / Journal of Business Venturing 17 (2002) 21–40

31

general manager of the department said that his guidance ensured that all his subordinates followed similar guidelines. The small size of his department facilitated the sharing of knowledge and experience. He jokingly added that writing down the guidelines would be just like writing a basic management textbook. But they did try to write a manual for project evaluation. Basically non-CFB4 had a three-tiered system in handling investment projects. The corporate development department dealt with feasibility studies, negotiations and proposals. At a higher level, there was a committee consisting of the managing director, general managers and senior managers. The committee discussed investment proposals and made preliminary decisions on the viability of a project. Proposals of viable projects were submitted to the board of directors for approval. Likewise non-CFB3 had a structured approach. The business development and legal departments of the industrial division were responsible for evaluating new projects of that division. They had a set of written guidelines. An investment proposal had to include discussions of risk, strategic fit, industrial prospect, and so forth. Before a proposal was submitted to the board, it had to be examined by the chief finance officer. A more formal and structured approach does not imply that a set of written guidelines is always preferred. The substantial tacit element of the knowledge concerned makes the job of converting the knowledge into a written form difficult and somewhat impractical. ‘‘There is no way and it makes no sense to have a set of guidelines, . . . or we never feel the need to have a set of guidelines on how to approach joint ventures because it is based on actual work experience,’’ said one director of non-CFB1. Nevertheless, the company carefully kept those well-written feasibility studies in a file for future reference. 6.4. Negotiation When a foreign investor sets up an operation in China, it has to negotiate with the government bodies concerned. If the operation is a joint venture, negotiations with potential Chinese partners are required as well. It has become rather well known that Chinese negotiators may use tactics that catch their Western counterparts off guard (Pye, 1982). Thus foreign investors need to send their skillful negotiators to China in order to achieve good bargains. The composition of a negotiating team has important learning implications because team members are the ones who have a chance to practice and improve their skills of negotiation in the Chinese context. Again the CFBs were different from the non-CFBs in terms of how a negotiating team was organized. The negotiating teams of the CFBs tended to be small and consisted of mostly family members. For example, the negotiating team of CFB3 consisted of the boss and his immediate family members only. Similarly, the boss of CFB2 and his brother handled all the negotiations. The boss gave an interesting reason why he had to be personally involved. He argued that since China was the most difficult market, the most experienced person should be in charge and he was that person. He did not realize that he had not given his staff any chance to get involved in negotiating the company’s previous projects in Malaysia, Thailand, and the Philippines. He had handicapped his staff in this respect. The situation of the semi-CFBs was somewhat different. Their negotiating teams also included non-family members who had worked in the company for a long time. For

32

E.W.K. Tsang / Journal of Business Venturing 17 (2002) 21–40

example, the managing director (a non-family member) of sem-CFB2 was the key person in negotiating the company’s first joint venture in China. The negotiating team of a non-CFB was usually larger and composed of a team leader, technical, finance, marketing and sometimes, legal personnel. This does not mean that each member was present in every negotiation; it depended on whether certain expertise was called for in a negotiation. Since a negotiating team had to report their progress to senior management, it was necessary for them to discuss, organize and analyze the materials and to produce written reports. All these activities contribute to experience sharing and building up of the organizational memory. 6.5. Assigning staff to China After a project has been successfully negotiated, the next question is: ‘‘Who is going to manage it?’’ This is an important issue as far as learning is concerned. Expatriate managers assigned to overseas subsidiaries are agents of knowledge transfer and learning. On the one hand, they are responsible for transferring management practices from headquarters to subsidiaries. On the other hand, they have to learn to run the subsidiaries in foreign environments and transfer what they have learned back to the headquarters. Despite the shortage of experienced managers in Singapore, most of the firms in the sample preferred to send their staff to China whenever possible. This was partly because they held an ethnocentric attitude and wanted to replicate their management systems in China. Since an expatriate manager works beyond the physical vigilance of his superior in headquarters, an element of trust is involved. When discussing the issue of trust in Chinese society, Redding (1990, p. 66) notes: The key feature would appear to be that you trust your family absolutely, your friends and acquaintances to the degree that mutual dependence has been established and face invested in them. With everybody else you make no assumptions about their goodwill. It is thus expected that CFBs prefer to send family members to be in charge of their important overseas investments. If family members occupy senior management positions overseas, FDI experience at the strategic level will be contained within the family. Many of CFB1’s operations in China were manned by close relatives or old classmates of the boss, whose personal assistant commented that some of these people did not have relevant expertise. As it may be difficult for CFBs to trust non-family members to be in charge of overseas operations, their international expansion is constrained (Carney, 1998). This problem might be particularly acute for CFB1 because it had more than 10 investments in China. One of these investments visited by the author was managed by two mainland Chinese managers, who did not have any family relationships with the boss. As mentioned earlier, non-family members have to serve a CFB for a long time before they would be trusted. The two Chinese managers had worked in CFB1 for 8 years and received training in the Singapore headquarters before they were entrusted with running the factory.

E.W.K. Tsang / Journal of Business Venturing 17 (2002) 21–40

33

CFB2 planned to set up a China regional office in their newly built Chinese plant. The office would be managed by the boss and his brother. Each of them would work in the office for 3 months alternatively. CFB3 was an exception. The company sent a non-family member to manage its three subsidiaries in China. In addition to the difficulty of identifying suitable family members, the decision was made partly because the scale of operation for the three subsidiaries was small. All the expatriate managers assigned to China by the semi-CFBs were non-family members. Some of them were specifically recruited from outside for the China assignment when suitable candidates could not be found within the company. Compared with the CFBs, the non-CFBs had a clear career path for their expatriate managers. They tended to rotate their expatriate managers systematically not only within China but also among other overseas operations. The objective was to develop a team of international managers. This practice would help spread FDI experience in the organization. 6.6. Communication, control and networking Communication is the process of giving and receiving information, and is an essential step in learning. Through communicating with overseas subsidiaries, the staff at the headquarters gains important knowledge of how these subsidiaries are run. It was found in this study that the CFBs and non-CFBs differed significantly in two aspects of such communication. Firstly, operations in China normally had to submit regular reports on financial matters, production, personnel, local market situations, and so forth to Singapore. Most of the reports were monthly and some, weekly. They were usually presented in a standardized format. During the interviews, some respondents let the author have a look of the reports. In nearly every case, a person was assigned to receive and examine the reports. For the CFBs and semi-CFBs, somewhat contrary to expectations, that person was usually not the boss. For example, the managing director of CFB1, the boss’s brother of CFB2, and the finance and administration manager of CFB3 were doing that job. One reason was that the job was routine and of little strategic significance. The boss would be involved only when serious irregularities were detected. The non-CFBs tended to have more stress on systematic and detailed reports, which were acted upon by the respective functional departments. Written reports submitted by their China operations were presented in a standardized format and generally were rather detailed. A related issue is the way of handling these reports. Although one person might be in charge of all the operations in China, the non-CFBs usually distributed the reports to their respective departments, which were responsible for studying the reports and highlighting any irregularities spotted. In brief, the non-CFBs had a more institutionalized reporting system and information contained in the reports was better spread in the organization. The second aspect of communication where the CFBs and non-CFBs differed was visits to overseas operations by senior management. As argued by Inkpen (1996), visits and tours of joint venture facilities are an effective means for managers in the parent companies to learn about their joint ventures. While senior management of the 10 cases visited their China operations regularly, the three CFBs stood out as a distinct group in terms of the frequency of visits and the seniority of the managers involved. All the bosses of the CFBs went to China

34

E.W.K. Tsang / Journal of Business Venturing 17 (2002) 21–40

frequently. The boss of CFB1 visited nearly every operation each month. He spent about 70% of his time in China. The operations were located in several cities. Taking into account the fact that he was in his fifties, the task was really taxing. He believed that his visit would raise the morale of his staff. He also wanted to have a better understanding of the actual operation and to help his managers solve major problems. Whenever an operation faced serious problems or failed badly in terms of achieving performance targets, the boss would spend more time with the operation. ‘‘This is the moment they (the managers) needed me most. I should not delegate this task to others,’’ he explained. During a normal visit, he held meetings with managers and checked whether they had properly implemented the operational objectives. Through such communication, he hoped that the managers would understand his management philosophy. This can be considered as socialization through personal coaching and reflects the paternalistic feature of a CFB. These visits enabled the boss to gain intimate knowledge of the operations. Similarly, the boss and his brother of CFB2, as well as the boss and his daughter of CFB3 visited their China operations very frequently. The only joint venture of CFB2 in China was not doing well. The venture was run by the Chinese partner alone; CFB2 did not station any of its managers in the venture. The poor performance led to an even heavier involvement of the boss himself in monitoring the management of the venture. His argument was that he needed to contribute his experience and expertise directly in order to turn around the venture. The visits can also be regarded as part of the intensive networking activities commonly found among bosses of CFBs (Redding, 1990; Weidenbaum and Hughes, 1996). During their stay in China, the bosses of the three CFBs also visited the external stakeholders of their operations, such as government bodies, suppliers, and customers. The purpose was to maintain as well as to build up guanxi with these stakeholders. ‘‘I have to personally make sure that the factory and the marketing offices in China have good guanxi with the local governments. For this matter, you cannot rely on other people,’’ said the boss of CFB2. Guanxi is said to be an important asset in Chinese business communities (Ambler, 1994; Yeung and Tung, 1996; Tsang, 1998). It is no wonder the boss of a CFB usually chooses to be personally involved in playing the guanxi game. Since guanxi has to be established on a personal basis, personnel turnover affects the quality of guanxi. A manager of non-CFB2 said that the frequent change of their managers sent to China had a detrimental effect on their guanxi network; sometimes, valuable guanxi was lost when a manager left the company. The heavy involvement of the boss of a CFB in establishing and maintaining guanxi avoids this problem. A government official, who was in charge of FDI activities in a major Chinese city, said that he preferred to deal with CFBs because their bosses were stable contact points. For non-CFBs, he needed to re-establish guanxi whenever there was a change of senior managers. It seems that CFBs are generally more successful than non-CFBs in playing the guanxi game. With the exception of semi-CFB3, the bosses of the other two semi-CFBs visited China less frequently. They delegated the task to other senior managers who were non-family members. For the non-CFBs, visits by their senior management were much less frequent and usually of a specific purpose, such as attending joint venture board meetings. Of course, firm size is also an important factor here. The non-CFBs were on average much larger than the other cases. Attention of the senior management had to be spread over a wider scope of activities. However, the fact that all the bosses and their close family members of the three

E.W.K. Tsang / Journal of Business Venturing 17 (2002) 21–40

35

CFBs visited China personally, instead of delegating part of the task to their senior non-family members, indicates their strong desire for direct personal control. 6.7. Experience sharing in Singapore headquarters In order that FDI experience gained by a firm can stand personnel turnover, the experience has to be widely shared in the management team. To better understand how experience is shared in CFBs, it is important that experience at the strategic level be distinguished from experience at the operational level. The former is gained from involvement in general management and strategic decision making, the latter from day-to-day operation. A key feature of the three CFBs was that China experience at the strategic level was held by the boss and his close family members. This was the result of the high degree of centralized decision making and personal control. As far as experience at the operational level is concerned, all 10 cases were similar. The experience was gained by staff who engaged in the functional aspects of a China operation. Take CFB2 as an example. Although only the boss, his wife and his brother were overseeing the China projects, their staff was involved on the operational side. For instance, their technical staff was sent to China to train the local people and to tackle technical problems. Their accountant went there regularly to check the accounts. At the same time, the above staff learned from their involvement in these activities. The main difference between a CFB and a non-CFB thus lies in the extent to which strategic experience is shared by senior management. In the case of non-CFBs, the experience is better shared because of the wider participation of senior managers in strategic decision making and in handling matters of strategic concerns.

7. A contrast of approaches to FDI The above discussion has indicated that these are two distinct approaches to dealing with FDIs. The first approach is exhibited by the three CFBs and the second, by the four non-CFBs. Table 2 summarizes the two approaches. The approach adopted by the three semi-CFBs is somewhat in between. The two different approaches have important implications for organizational learning. Strategic experience is largely maintained within the family (particularly the boss) of a CFB because of its highly centralized management control and strategic decision making. Since ownership and management control are both concentrated within the family, the danger of knowledge erosion due to personnel turnover is small. However, a sudden and unexpected loss of key family members can have a very detrimental impact on the knowledge base of a CFB. Compared with CFBs, non-CFBs exhibit better sharing and institutionalization of FDI experience, and more of their knowledge is stored in the non-human component of organizational memory. As mentioned earlier, firm size may be a confounding factor in this study. A key variable that concerns us here is formalization. Research studies have found that an organization’s total employment alone is a reasonably accurate predictor of its level of formalization (Child, 1984). In a study of 78 British companies, Child (1973) found that size of organization was positively

36

E.W.K. Tsang / Journal of Business Venturing 17 (2002) 21–40

Table 2 A contrast of approaches to FDIa Information collection and analysis

Negotiating team

Assignment of expatriate managers

Communication between Singapore and China

Experience sharing in Singapore headquarters

CFBs

Non-CFBs

Low degree of formalization and unstructured Information mainly stored in the human component of organizational memory; adverse impact on diffusion of knowledge Small and consisting mostly of the boss and his immediate family members Limited experience sharing outside the family Family members in charge of key expatriate positions Strategic experience held within the family Relying heavily on visits by the boss Intimate knowledge of China operations obtained by the boss Strategic experience mainly held by the boss and his family members

High degree of formalization and structured Information also stored in the non-human component of organizational memory; facilitating knowledge diffusion Large and consisting of functional managers

Learning at the strategic level highly centralized a

Experience spread across functional departments Systematic rotation of expatriate managers Experience spread among managers Relying more on detailed and systematic written reports Information kept in non-human storage bins Strategic experience spread among managers through channels such as meetings and management participation Wider spread of strategic learning

Implications for organizational learning are written in italics.

related to formalization and standardization. Therefore, the more formal and structured approach to FDI found among the non-CFBs may be partly due to their size. It is difficult to disentangle the ownership factor from the size factor. Nevertheless, this confounding effect may not be as serious as it appears. Firstly, although CFB1, a very typical CFB, employed only 170 staff in Singapore, its total number of employees in Malaysia and China was over 3000. This size of employment was comparable with the non-CFBs. Secondly, for non-CFB1, there were only 12 managers working in the corporate headquarters, which oversaw the company’s operation worldwide. This number of corporate staff was similar to those found in the CFBs and semi-CFBs; these companies employed only a dozen or so managers in their core management teams. In short, as indicated by the case evidence, the ownership factor seems to have much greater influence on the approach to FDI than the size factor. 8. Conclusion Using an organizational learning perspective, this paper examines the FDI behavior of CFBs by contrasting it with the behavior of non-CFBs. While making significant contribu-

E.W.K. Tsang / Journal of Business Venturing 17 (2002) 21–40

37

tions, the paper faces some limitations due to the nature of the cases studied. The paper also generates some practical implications and points to some interesting future research directions. These issues are presented below. 8.1. Limitations Besides the firm size problem discussed above, another limitation of the study is that the CFBs and semi-CFBs were in their early stages of internationalization. None of them had investments in more than three foreign countries. As such, their FDI behavior may not be representative of those CFBs that are experienced MNCs. For instance, the size limit of a family implies that as a CFB expands overseas, it has to rely increasingly on non-family members for assuming key management positions, resulting in a wider spread of strategic experience. 8.2. Contributions Despite the limitations cited above, this study offers several significant contributions to the research areas of family business and organizational learning. Litz (1997) comments that the majority of business school research has ignored the role of family in managing business enterprises. As CFBs are an important type of family firms, this study enriches the literature on the family firm in general, and the CFB in particular. Family business researchers seldom conduct studies in which family businesses are contrasted with non-family businesses (Daily and Dollinger, 1992). By comparing CFBs with non-CFBs, this study addresses this deficiency. Moreover, the study has revealed that CFBs and non-CFBs are merely the two ends of a continuum of degrees. As illustrated by the three semi-CFBs in the study, there are organizations that possess only some of the characteristics of a typical CFB. This point is neglected by existing studies of CFBs. These studies often adopt an either–or distinction. In addition, the focus of these studies is on the domestic operation of CFBs and seldom touches upon their FDI behavior, not to mention learning behavior. This study confirms the distinct characteristics of CFBs discussed in literature. More important, it shows how these characteristics influence the learning behavior of CFBs. The centralization of authority and control results in the concentration of strategic knowledge in the boss and his family. Non-family members also learn, though not at the strategic level, through their involvement in daily operation. Tsang (1997) comments that prescriptive writings on how to develop a learning organization often recommend only a single method to reach the destination. They fail to realize that organizations have different styles of learning and need different methods of revising their existing styles. Shrivastava (1983) classifies organizational learning systems into six types along two dimensions, namely individual–organizational and evolutionary-design. The first dimension concerns how far individual knowledge and insights are converted into a systematic knowledge base that informs decision making while the second dimension is about the process by which the learning systems come to exist in the organization. CFBs exhibit a learning style that is similar to that of the one-man institution within Shrivastava’s (1983) typology. The boss of a CFB seems to be the man ‘‘who is knowledgeable about all

38

E.W.K. Tsang / Journal of Business Venturing 17 (2002) 21–40

aspects of the business, (and) is the key broker of organizational knowledge. He acts as a filter and controls the flow of information to and from every important manager’’ (Shrivastava, 1983, p. 20). While constructing another typology of learning systems is beyond the scope of this study, this paper supports Shrivastava’s (1983) contention that firms exhibit rather distinct learning behavior. Organizational learning consultants need to take note of this fact when making recommendations to their clients. 8.3. Managerial implications This study has some practical implications for the internationalization of CFBs. The centralization of authority and control results in the concentration of strategic knowledge gained from internationalization within the family, in particular the head of family. This management style has the advantages of fast decision making and avoiding leakage of strategic information to competitors. On the other hand, it relies on a fragile organizational memory. An unexpected loss of key family members can have a very detrimental impact on the knowledge base of a CFB; just imagine the dire consequences to CFB1 if the founder suddenly passes away. To reduce this risk, CFBs should seriously consider inviting more loyal non-family members to participate in their strategic decision making processes. Perspectives brought in by these people will enrich the family based decision paradigm and may lead to better decisions. The tendency to appoint family members to hold top management positions in overseas operations constrains the internationalization of a CFB. Some of these people may not have the necessary expertise or cultural adaptability to manage subordinates who are from a different culture. Moreover, indigenous employees of an overseas operation may be demotivated because they know that they will never rise to the top no matter how good their performance is. The practice of CFB1 to promote two mainland Chinese managers to be in charge of one of its operations is laudable. The two managers mentioned that their promotions had a strong motivating effect on other Chinese managers in the company. 8.4. Directions for future research This research is an exploratory study of the FDI approach adopted by CFBs. Future studies should be based on a larger sample, preferably in more than one country. Certain strengths and weaknesses of the FDI approach have been identified in this study. From a prescriptive perspective, a fruitful research direction would be to find out ways that can alleviate these weaknesses while at the same time improve on the strengths. The challenge is to work within the parameters of CFBs. As Weidenbaum (1996, p.155) maintains, ‘‘attempts to transform the informal, loosely structured (but tightly controlled) Chinese enterprise into a more bureaucratic, Western-style corporation will fail.’’ In fact, many CFBs that have become sizable MNCs still maintain characteristics that distinguish them from Western corporations. For instance, Li Ka Shing, whose huge business empire is based in Hong Kong, is in the process of transferring not only his leadership but also his business network to his two sons. His companies do hire professional managers, yet important strategic decisions are in the

E.W.K. Tsang / Journal of Business Venturing 17 (2002) 21–40

39

hands of father and sons. It is hoped that this paper will stimulate further research on these and other interesting issues. Acknowledgments The author would like to thank Fock Siew Tong and an anonymous reviewer for their insightful comments. References Ambler, T., 1994. Marketing’s third paradigm: guanxi. Bus Strategy Rev 5 (4), 69–80. Brockhaus, R.H.S., 1994. Entrepreneurship and family business research: comparisons, critique, and lessons. Entrepreneurship: Theory Pract 19 (1), 25 –38. Carney, M., 1998. A management capacity constraint? Obstacles to the development of the overseas Chinese family business. Asia Pac J Manage 15 (2), 137–162. Chan, K.B., Chiang, C.S.N., 1994. Stepping Out: the Making of Chinese Entrepreneurs. PrenticeHall, Singapore. Chang, S.J., 1995. International expansion strategy of Japanese firms: capability building through sequential entry. Acad Manage J 38 (2), 383 – 407. Chau, T.T., 1991. Approaches to succession in East Asian business organizations. Fam Bus Rev 4 (2), 161–179. Child, J., 1973. Strategies of control and organizational behavior. Adm Sci Q 18, 1–17. Child, J., 1984. Organization: a Guide to Problems and Practice, 2nd edn. Harper & Row, London. Daily, C.M., Dollinger, M.J., 1992. An empirical examination of ownership structure in family and professionally managed firms. Fam Bus Rev 5 (2), 117–136. Eisenhardt, K.M. 1989. Making fast strategic decisions in high-velocity environments. Acad Manage J 32 (3), 543 –576. Gallo, M.A., Sveen, J., 1991. Internationalizing the family business: facilitating and restraining factors. Fam Bus Rev 4 (2), 181–190. Hamilton, G.G., 1996. Competition and organization: a reexamination of Chinese business practices. J Asian Bus 12 (1), 7–20. Hamilton, G.G., Biggart, N.W., 1988. Market, culture and authority: a comparative analysis of management and organization in the Far East. Am J Sociol 94 (suppl.), S52–S94. Handler, W., 1989. Methodological issues and considerations in studying family businesses. Fam Bus Rev 2 (3), 257–276. Harrigan, K.R., 1985. Strategies for Joint Ventures. Lexington Books, Lexington, MA. Hedberg, B., 1981. How organizations learn and unlearn. In: Nystrom, P.C., Starbuck, W.H., (Eds.), Handbook of Organizational Design (Vol. 1). Oxford University Press, Oxford, pp. 3 – 27. Hodder, R., 1996. Merchant Princes of the East. John Wiley & Sons, Chichester. Huber, G.P., 1991. Organizational learning: the contributing processes and the literatures. Organ Sci 2 (1), 88 –115. Hwang, K.-K., 1995. Modernization of the Chinese family business. In: Kao, H.S.R., Sinha, D., Ng, S.-H., (Eds.), Effective Organizations and Social Values. Sage Publications, Singapore, pp. 37 – 62. Inkpen, A.C., 1996. Creating knowledge through collaboration. Calif Manage Rev 39 (1), 123 –140. Jelinek, M., 1979. Institutionalizing Innovation. Praeger, New York. Kao, J., 1993. The worldwide web of Chinese business. Harv Bus Rev., March – April, vol. 71, 24 –36. Kogut, B., Zander, U., 1993. Knowledge of the firm and the evolutionary theory of the multinational corporation. J Int Bus Stud 24 (4), 625 – 645. Lee, S.K., 1987. A Chinese conception of ‘‘management’’ — an interpretive approach (Singapore). Unpublished PhD dissertation. University of Massachusetts.

40

E.W.K. Tsang / Journal of Business Venturing 17 (2002) 21–40

Levitt, B., March, J.G., 1988. Organizational learning. Annu Rev Sociol 14, 319 –340. Li, R., 1994. China expands development of private economy. Beijing Rev 20 – 26 (June), 18 –21. Limlingan, V.S., 1986. The overseas Chinese in ASEAN: business strategies and management practices. Unpublished DBA dissertation. Harvard University. Litz, R.A., 1995. The family business: toward definitional clarity. Fam Bus Rev 8 (2), 71– 81. Litz, R.A., 1997. The family firm’s exclusion from business school research: explaining the void; addressing the opportunity. Entrepreneurship: Theory Pract 21 (3), 55 –71. Lyles, M.A., 1988. Learning among joint venture sophisticated firms. Manage Int Rev 28 (Special Issue), 85 – 97. Nonaka, I., Takeuchi, H., 1995. The Knowledge Creating Company. Oxford University Press, New York. Powell, W.W., 1990. Neither markets nor hierarchy: network forms of organization. In: Staw, B.M., Cummings, L.L., (Eds.), Research in Organizational Behavior (Vol. 12). JAI Press, Greenwich, CT, pp. 295 – 336. Pye, L.W., 1982. Chinese Commercial Negotiating Style. Oelgeschlager, Gunn and Hain, Cambridge, MA. Redding, S.G., 1990. The spirit of Chinese capitalism. Walter de Gruyter, Berlin. Shrivastava, P., 1983. A typology of organizational learning systems. J Manage Stud 20 (1), 7–28. Simon, H.A., 1991. Bounded rationality and organizational learning. Organ Sci 2 (1), 125 –134. Tsang, E.W.K., 1997. Organizational learning and the learning organization: a dichotomy between descriptive and prescriptive research. Hum Relat 50 (1), 73 – 89. Tsang, E.W.K., 1998. Can guanxi be a source of sustained competitive advantage for doing business in China? Acad Manage Exec 12 (2), 64 –73. Walsh, J.P., Ungson, G.R., 1991. Organizational memory. Acad Manage Rev 16 (1), 57–91. Weidenbaum, M., 1996. The Chinese family business enterprise. Calif Manage Rev 38 (4), 141–156. Weidenbaum, M., Hughes, S., 1996. The Bamboo Network. Free Press, New York. Whitley, R., 1992. Business Systems in East Asia. Sage Publications, London. Whyte, M.K., 1996. The Chinese family and economic development: obstacle or engine? Econ Dev Cult Change 45 (1), 1–30. Wong, B., McReynolds, B.S., Wong, W., 1992. Chinese family firms in the San Francisco Bay Area. Fam Bus Rev 5 (4), 355 –372. Wong, S.-L., 1985. The Chinese family firm: a model. Br J Sociol 36 (1), 58–72. Yeung, I.Y.M., Tung, R.L., 1996. Achieving business success in Confucian societies: the importance of guanxi (connections). Organ Dyn vol. 25, 54 – 65.

Eric Tsang is an associate professor at Nanyang Technological University, Singapore. He received his PhD from the University of Cambridge. His research interests include organizational learning, entrepreneurship, strategic alliance, and resource-based theory. His articles have been published in Journal of Business Venturing, Entrepreneurship: Theory and Practice, Human Relations, Organization Studies, Academy of Management Review, Academy of Management Executive, Management International Review, Journal of World Business, and other refereed journals.