Family Multinationals

Entrepreneurship, Governance, and Pathways to Internationalization

Christina Lubinski, Jeffrey Fear, Paloma Fernández Pérez, Christina Lubinski, Jeffrey Fear, Paloma Fernández Pérez

• Publisher: Routledge
• Year: 2013
• ISBN:
  9781135044923
• Edition: 1
• Topic: Negocios y empresa
• Subtopic: Historia empresarial

In contrast to widespread assessments that family enterprises lack sufficient resources and capabilities to go global, many family companies are competing successfully in an increasingly globalized business environment. Worldwide, a large number of thriving multinationals are still family-owned and/or under family control. While there is abundant literature on the phenomenon of globalization from many different disciplines, neither the literature on multinationals nor the growing field of family business studies have systematically investigated family multinationals yet. This volume is one of the first to deal explicitly with family multinationals and the role of the family in internationalization. It situates itself at the crossroads of internationalization studies on the one hand and family business research on the other.

Why do families continue to play such a large role in some of the most prominent firms in emerging and mature economies? How did they manage to maintain ownership control, yet divest of unrelated business ventures? How did they internationalize yet maintain control? This book identifies the idiosyncratic strategies and structures of family multinationals in different countries and at different points in time. A comparative historical and case study approach allows us to explore the role of the family through the firms' various internationalization pathways and understand long-term developments and path dependencies.

1 Family Multinationals

Entrepreneurship, Governance, and Pathways to Internationalization¹

Christina Lubinski, Jeffrey Fear, and Paloma Fernández Pérez

1.1 WHY FAMILY MULTINATIONALS?

Within a few years of Werner Siemens founding his eponymous German electrical company in 1847, it had developed a global presence. By 1913, for example, more than 30 percent of its 80,000 employees worked outside of Germany. By contrast, the medium-sized manufacturer Haitoglou Bros. S.A., a producer of high-quality Greek delicacies founded in 1924, only started exploring foreign markets after sixty years of leadership in Greece’s domestic food industry.

Both Siemens and Haitoglou are examples of internationally active family businesses (FBs) whose internationalization pathways, strategies, and organizational structures have been shaped by family ownership and kinship relations. Werner Siemens utilized family ties to build his global empire in the nineteenth century, sending two of his brothers to England and Russia who jointly managed the company with him. They exploited the Siemens’s “good name” internationally and expressly pursued the goal of building a lasting family dynasty.² Haitoglou, on the other hand, grew slowly and incrementally, choosing low-risk and low-capital strategies to maintain the family influence and avoid dependence on external funding. When the owning family eventually decided to go global, the company first targeted Greek diaspora markets in the United States and Australia, which helped it overcome “psychic distance” before broadening its product portfolio to include other high-quality Mediterranean food products. During its slow growth, Haitoglou accumulated specific and experiential knowledge that allowed it to grow from its low-risk strategy that built upon its Greek origin to an internationally adaptable corporate brand advocating healthy lifestyles in general.³

Siemens and Haitoglou are no outliers in today’s global economy, nor are they relics of a bygone age. As in the late nineteenth and early twentieth centuries, one can now still find “born-global” FBs alongside those that internationalize cautiously, or not at all. FBs still constitute the vast majority of companies in market economies worldwide. Statistics vary greatly depending on data sources and definitions, but it is estimated that 96 percent of all U.S. companies are FBs, mostly in the smaller-size sector. In South America, FBs constitute between 90 percent of all companies in Brazil and 65 percent in Argentina. In Europe (all listed as percentages), they make up the majority in Belgium (70), Finland (80), France (65), Germany (60), Greece (80), the Netherlands (74), Italy (93), and Spain (75), to name but a few.⁴ In most countries outside the United States, family ownership also prevails in larger companies.⁵ While there is no conclusive quantitative data about how many of them are internationally active, families certainly have been important decision makers in the history of past multinationals and continue to shape international companies to this day.

This book explores such “family multinationals”: companies active outside their country of origin that were significantly influenced by a family. More precisely, we seek to understand the degree to which family influence helps to explain internationalization pathways and strategies from the nineteenth century to the present. As historians, we reflect on how firm globalization has changed in light of underlying geopolitical conditions that have shaped global trading systems, as well as on how family kinship structures have changed over time in particular places.

The diversity of family multinationals—both historically and today—makes this topic challenging. Many unresolved issues derive from a lack of generally accepted definitions. We define multinationals as firms that control operations in more than one country as opposed to internationally active firms that merely export from a single home base⁶ and family firms (or FBs) as companies significantly influenced by a family, usually through ownership and/or management. In the literature, majority ownership is often taken as a pragmatic defining characteristic, and many chapters in this volume follow this lead. However, in certain organizational structures, preferred voting rights, veto rights thresholds, the issuing of nonvoting shares, holding companies, or complicated cross-shareholding structures usually found in pyramidal business groups can result in a family having a high level of influence even without majority ownership.⁷ Other FB characteristics discussed in the literature include key actors perceiving a company as a FB, a public image fusing firm and family, or attempts to maintain family influence for future generations.⁸ This last quality has been described as a “dynastic motive” and as “the essence of a family business.”⁹ Such a vision may have a stronger impact on corporate structure and strategy than other aspects of governance, and it is certainly justified to call for a stronger focus on the family itself as a unit of analysis.¹⁰

Still, the range of possible corporate governance forms and cultural arrangements, especially in international contexts, means that these definitions can only serve as benchmarks against which to explore diversity.¹¹ Instead of creating a rigid dichotomy of global FBs and non-FBs, we follow Astrachan et al. in qualitatively assessing family influence, asking how a family influences a company and exerts control over it.¹² Companies change, family influences can dwindle and disappear over time, and we want to capture these dynamic processes. That is why we focus on the question of how families shape internationalization strategies and pathways, which would look rather different in the absence of the family.

Business research has so far viewed FBs and multinational corporations as opposing business models. FBs evoke an image of inward-oriented, small- to medium-sized firms that often lack financial and human capital and are hesitant to take on risk. Multinationals are usually associated with large-scale managerial professionalized organizations able to raise enormous amounts of capital for international expansion. With the growth of a company, Alfred D. Chandler Jr. argued, professionally trained experts who can act independently of family loyalties—as well as shareholders, as some critics lament—eventually replace founders and their families.¹³ Within this oppositional point of view, these managerial companies are regarded as having more resources and being better prepared for internationalization.

However, over the last few decades, FB internationalization has received renewed consideration. Chandler’s model has been criticized for being teleological and biased towards developments in the United States, despite his insistence that a diversity of organizational arrangements could appear in dynamic firms in different environments. Most countries had widely different experiences.¹⁴ Even in the United States, the separation of ownership and management was never complete.¹⁵ In a study of S&P 500 firms, Ronald C. Anderson and David M. Reeb discovered that 33.6 percent were FBs in which the founding family held, on average, 18 percent of firm equity. Moreover, they concluded that “family ownership is an effective organizational structure.”¹⁶

This conclusion accords with at least three lines of research. First, La Porta et al. show that in the twenty-seven economies they analyzed, 30 percent of the largest companies were family controlled, while 36 percent were widely held and 18 percent state controlled.¹⁷ While in the United States, United Kingdom, and Japan widely held ownership is the norm for the largest corporations, Argentina, Greece, Austria, Germany, Hong Kong, Portugal, Israel, and Belgium have hardly any such firms. Second, as Asli Colpan et al. have recently shown in their Oxford Handbook of Business Groups, most business groups in the world continue to be controlled by strong families.¹⁸ Third, scholars investigating small and medium-sized multinationals have consistently demonstrated the importance of family influences.¹⁹ However, the question of how controlling families influence internationalization pathways in different national and historical settings has seldom been posed.

We are well aware that family influence cannot be analyzed in isolation and that there are additional factors affecting strategies and structures for internationalization, such as a firm’s age and industry, regulatory burdens, cultural barriers, and economic variables. Within the family and between families, religious or ethnic ties may impact internationalization pathways,²⁰ and company size is highly relevant, as well. We know very little about the differences between small and medium-sized international enterprises (SMEs) and large-scale global corporations. Even leaving aside the family dimension—impossible in smaller firms—investigating the differences between small and large-scale firm internationalization has become an exciting new research field.²¹ The contributions in this volume reflect on all of these variables and take pains to contextualize family multinationals. However, by focusing closely on different forms and degrees of family influence over time, we aim to explain how families have shaped the internationalization process in different historical periods.

1.2 CROSSING DISCIPLINARY BORDERS: FAMILY MULTINATIONALS IN MANAGEMENT AND HISTORICAL RESEARCH

This volume positions itself at the intersection of family business studies, international business, and business history. All three fields have dealt with FB internationalization in different ways. While both family business and international business studies are linked through strategic management literature, business history differs most clearly in its methodologies, its choice of topics, and its embeddedness in particular national research agendas.

When specialized family business studies emerged in the 1980s, scholars focused on theoretical models of the family and the firm.²² The three-circle model, first presented by Renato Tagiuri and John Davis in 1982, understands a family business as the intersection of three separate circles: family, business, and ownership. Because FB members belong to more than one circle at the same time, they confront conflicting roles that can potentially generate tensions and conflicts.²³ Because much of this early research was devoted to internal FB dynamics, its explanatory power is strongest concerning the relationship between families and their businesses and in identifying potential conflicts. The most contentious issues in this phase of research were questions of definition, succession, family conflicts, and governance issues.²⁴

Internationalization has only recently sparked the interest of family business scholars. Most peer-reviewed articles about FB internationalization have appeared since 2005, while the earliest contributions can be traced to the early 1990s.²⁵ FB internationalization research is closely related to and partly derived from previous studies in international business, and makes use of the same theories and methodologies.

International business studies are particularly strong in mapping and explaining internationalization processes and modes of entry into foreign markets. Recently, FBs have become an object for such studies as well. The focus, however, has largely been on small companies and elucidating the consequences of company size on internationalization rather than dimensions of family influence.²⁶

Business history, by contrast, provides an array of in-depth longitudinal case studies that deal with family multinationals and contextualize them in specific historical settings, often lost to management studies with its focus on theory formalization. However, historians have neglected in the past to pay attention to management models and theoretical underpinnings of their work. Thus, while historians have dealt with FB examples for a long time, it was not until the mid-1990s that they began to explicitly focus on family influences.²⁷ Specialized family business research has since become a core genre in general business history. Single company studies,...