It’s not about family firm size, Simply!

By Rodrigo Basco, Ph.D.

It is not about size‘You talk about innovation but the small firms you refer to in your blog generate little added value to the economy …’ I received this comment on an email. The reader may be right, but at the same time maybe not absolutely right.

It’s true that small firms may not be an immediate source of innovation but they have great potential for development, as they create jobs, generate trade and, if the original idea is supported by entrepreneurial vision, the small business can become an innovative company (innovative in terms of product, process or management style). For example, Instagram, a small business with a web platform to share photos, was bought by Facebook for a billion dollars; at the time, Instagram had about 15 employees. So what?

It’s true that there is a bubble behind the dot.com companies, which may eventually burst, but today they’re very attractive firms. No wonder Berlin’s efforts to become the quintessential city of dot.com companies, with public and private initiatives supporting them to generate economies of scale and lead the process in Europe.

Even though venture capital from a country or region is an important economic and social asset, the place where innovations are generated is relevant. The creative ability of residents and their ability to transform ideas into business is what sets successful from unsuccessful regions apart. For instance, the important thing for regional development doesn’t lie in the existence of an Apple store (the one with the bitten apple) in our city or country, it lies on having minds that create companies like Apple. Although it’s hard to believe, the Apple Stores in Spain didn’t pay taxes in the fiscal year 2011 (accounting engineering and other practices). The question is why Spain is not able to create entrepreneurs who can envision a business, surround themselves with smart people and be stubborn and opportunistic enough to succeed treading on unknown paths up to that moment.

Family firms are important for the development of venture capital in a region or country. Family members are often economically, socially and emotionally tied to territory. Therefore, the family company becomes an actor, which is responsible to allocate resources. This has an effect on regional development.

Economic and social development is not an external phenomenon to social actors.  

For example, in 1977, Prieto Barilla opened a small shop with a bakery. Prieto learned the trade from his father and his cousin. His sons, Ricardo and Gualtiero, launched the company into the industrial production of pasta and bread with German machinery (Werner & Pfleiderer). Since then, the company has continued to grow, to incorporate technology and to develop their own innovations. Today the family business operates with the help of the fourth generation leadership of Guido, Luca and Paolo. The group employs over 8000 people worldwide and its products are distributed to more than 100 countries.

The strategic vision of the company has allowed the Barilla family to lead the process from small family neighborhood store to global family business. Family cohesion in the company’s direction, the compromise to take advantage of the know-how based on previous generations, the image of the company linked to the family name and their commitment to innovation (The Barilla Center for Food & Nutrition) are some of the positive characteristics when a virtuous circle between the company and the family occurs. The family orientation is extended beyond the headquarters, for instance the commitment with suppliers based on long-term relationships enables that today more than 80 percent of the raw materials used in its plants worldwide are from local suppliers.

Regions need to develop human capital, venture capital and increase the number of small local firms. Local businesses can be a key factor for sustainable economic and social growth in the long term. The process is not magic, much less spontaneous. It requires long-term policies, which go beyond short-term ambitions driven by the political agenda of re-election, the speculative financial dynamics or the political revenues that entrepreneurs get from the state.

 

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