Who is going to create employment in rural areas? – Family Firms

By Rodrigo Basco and Ramsha S. Khan

wordle 2This is an interview with Dr. Mikaela Backman of Jönköping International Business School, Centre for Entrepreneurship and Spatial Economics (CEnSE). Dr. Backman published an article in the Journal of Family Business Strategy in collaboration with Dr. Johanna Palmberg entitled: “Contextualizing small family firms: How does the urban–rural context affect firm employment growth?”

What has inspired you to write about the topic of family businesses and regional-urban areas?

I, Mikaela Backman, has a background in regional economics whereas Johanna Palmberg has mainly focused on corporate governance. When discussing our research interest, we realized that less focus had been given on combining these two topics. We thought this rather surprising as they are both well-established in the literature and of great importance in the field. This has resulted in us working together on the project of contextualizing small family firms.

What are the main results of the article published in the Special Issue?

The result of great importance  we find is that, on a general level, family firms do not differ significantly from non-family firms in terms of firm employment growth. What is notable to observe is that the ownership and control of a firm (i.e., whether the firm is a family firm) do affect employment growth differently across the urban–rural context. We find that family firms located in rural regions show a higher growth rate than nonfamily firms in the same regions.

What is the theoretical application of your research? What are the future lines of research of this topic?

The theoretical aspect that can be used to explain our results is that family firms are more locally embedded within rural regions, due to their historical, social, and cultural connections. These embeddedness characteristics may help family firms to have a competitive advantage in rural regions to create, develop, and allocate tangible and intangible resources (e.g., access to funding, which is more often based on relationship lending in rural areas and so family firms have an advantage).

This study contributes to the field of family business research and regional economics in several ways:

  • First, it represents a first attempt to empirically analyze the growth pattern of family firms from a regional economic perspective by introducing the context as an important dimension.
  • Second, the study extends the knowledge on firm-level growth in family firms by using data from small- and micro-sized family and nonfamily firms.
  • Third, concerning the regional economics literature, this article demonstrates the importance of considering corporate governance issues in relation to the spatial context—specifically speaking, the urban–rural context.

 Family firms and regional context is a novel topic that warrants further analysis.

  • Systematic studies of how different sets of regional categories affect firms could be conducted by dividing the urban–rural context into further subcategories. We know that both urban and rural areas are very heterogeneous and more classifications would be able to capture the differences. Family firms in substantially rural regions might behave differently from firms in rural areas that are more closely connected to economic centers.
  • Another aspect that could be explored in future research is the localization pattern of family fi Thus, an analysis of where and why family firms locate across space could identify whether there exists any systemic variation in the localization pattern in comparison with that of nonfamily firms.

What is the practical application of your research for policy-makers?

Our research has specific practical implications for policy makers highlighting the importance of taking into account the type of firm (family, nonfamily) and location when tailoring business-related public policies in order to intervene in regions to boost economic development. If policy makers target firm employment growth as an important dimension in which to intervene, ownership and management regimes and location matters. Certainly, our results indicate that a one-size–fits-all approach does not seem to be suitable.

Another policy perspective is targeting rural areas that are currently shrinking, in terms of both population and economic activity. The thought-provoking finding that family firms are more successful than nonfamily firms in these regions may have particular implications for local policymakers, as our results indicate that family firms appear to be relatively better suited to the conditions and challenges that exist in rural regions. This issue is of great importance, given the increasing rate of urbanization and the corresponding, negative consequences that many rural areas experience. To understand what happens in regions that do not grow or experience negative economic development is vital, but so too is an innate awareness of the positive developments that exist and how these can be better utilized.

Thus, the results presented in our research could potentially prove useful in future discussions of how to develop rural regional economic policies, and may also be relevant for other stakeholders in the ecosystem. Our findings do not support a “one-size-fits-all” regional policy, as it is clear that the characteristics of urban, rural, and metropolitan types of location differ considerably. Similarly, the particular attributes of family firms compared to those of nonfamily firms – such as attitudes toward independence, risk, financing, and social embeddedness – should be considered as part of the development of rural policy schemes, in order to promote local employment. Finally, for all types of firms, the local business community could support and encourage family firms by, for example, providing education, mentoring, and networking opportunities.

 

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