Does SIZE really matter? – Family business and regional development

By Rodrigo Basco and Ramsha S. Khan

This is an interview with Dr. Marco Cucculelli of Università Politecnica delle Marche, Department of Economics and Social Science. Dr. Cucculelli published an article in the Journal of Family Business Strategy in collaboration with Dr. Dimitri Storai entitled: “Family firms and industrial districts: Evidence from the Italian manufacturing industry

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What has inspired you to write about the topic of family businesses and industrial districts?

Since the ‘50s, family firms and industrial districts have been the driving factors of the Italian economic development. They are still landmark features of the Italian manufacturing industry, and major sources of its international competitiveness. Yet, the interplay between family ownership and the districtual organization of the economic activity has been mostly overlooked, or discarded as an outcome of old organizational forms that would be sources of decline or retard in the stages of mature development.

The aim of the research was to fill this gap by analyzing the joint influence of the family ownership and the districtual localization on firm performance. The rationale behind this approach lies on the need to reconnect the variability of firm performance to the heterogeneity of firms’ characteristics, as described by their ownership structure and geographical localization. The impact of these two components on heterogeneity passes through the evolution of the firm size over time. To cope with the changing profile of the competition, firms in industrial districts have started to adopt new strategies, many of them only available to larger firms. Successful medium sized enterprises have been doing particularly well in developing a modern entrepreneurial culture, in order to overcome the limits of traditional manufacturing localism and serve highly differentiated international demand. Today, they are able to manage effectively scale-sensitive strategic actions and competence-intensive activities targeted to larger markets. For doing this, they have leveraged their competitive advantages based on the family ownership: long term orientation, reputation, commitment to local producers and to the local labour market, shared social capital, values and norms, and a general networking ability which favours business alliances. Because of these connections, the family–district nexus is an unavoidable step to explore in order to understand the perspectives of economies based on a significant share of SMEs.

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

In addition to confirming the positive and sizeable effect of family ownership on firm profitability, the empirical results shows two additional findings.

Firstly, the impact of the districtual affiliation on firm performance is positive, but weaker than the family ownership advantage. The ‘‘district effect’’ however is still significant for non-family firms: to these firms, the districtual affiliation provides a set of positive externalities usually associated with family ownership. Therefore, family ownership and districtual localisation come out as alternative supporting mechanisms of the firm competitiveness.

Secondly, and most noteworthy, the interplay between the ‘‘district effect’’ and the ‘‘family effect’’ changes significantly across the firm size distribution. While these two effects are substitutes in smaller size firms, they are complements in medium-size firms. When firm size is small, family ownership replaces trust-based connections that are missing in non-districtual areas, thus lowering transaction costs and helping performance. Conversely, in medium and large-size companies, the involvement of the family in the business allows firms to exploits the family stewardship ability and the capacity to forge relationship with suppliers and buyers through family social capital. In this scenario, medium size firms come out as the organizational form that optimally leverages the benefits of the family governance with the efficiency features of the districtual organization.

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

The paper contributes to the literature on family firms and economic development. Therefore, it could be of interest to both policy-makers and international agencies dealing with the local economic development, especially in developing countries.

One crucial implication of the findings is that the positive influence of the family ownership changes according to nature of the external environments. In districtual areas, family firms provide superior networking abilities and commitment to local economy; in non-districtual areas, family ownership provides district-type assets by generating social capital, trust and reputational capital that reduces transaction costs and improves labour market relations. This double-link between family ownership and the business environment should be a reference point in the policy agenda on local economic development.

Another implication concerns the extension of the results to areas outside the Italian industrial districts. The European Cluster Observatory shows that localized organizational models of economic development are widespread in Europe. They include almost all medium and low-tech sectors of the manufacturing sector, that account for the larger share of employment and a significant part of the continental value added. These sectors typically exploit a district-type organization of the industry, where family ownership and management emerge as the best form of governance of the market relations. If family ownership and firm localisation impact on innovation, technology, firm growth, investment, risk attitude, labour market, finance and other variables, as a large literature shows, then also the smart-specialisation strategy should consider the family-district link when the issue of the competitiveness of Europe and European countries is addressed.

Finally, the paper supports the hypothesis that the structure of the productive sector matters for economic development. If the positive impact of family ownership is larger in environments with a prevalence of localised SMEs, the family-district link will probably become even more important if globalization intensifies. The response to the increased pace of internationalisation in the last decades has led to a significant revival of ‘‘small scale production’’ in the industrial system, and a growing share of SMEs in the economic system. Similarly, the geographical concentration of productive activities has increased, especially in low-tech industries, thanks to a district-type structure of the industrial organization. Taken together, these two factors will probably continue to provide fertile ground for the participation of the family in the business to support country competitiveness.

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Migrant and Diaspora Entrepreneurs in International Entrepreneurship

Journal of International Entrepreneurship

Guest Editors:

Maria Elo3
University of Turku, Institute of Migration, Finland

Susanne Sandberg
Linnaeus University, Sweden

Per Servais
University of Southern Denmark, Denmark

Rodrigo Basco
American University of Sharjah – Sheikh Saoud bin Khalid bin Khalid Al-Qassimi Chair in Family Business, UAE

Allan Discua Cruz
Lancaster University, UK

Liesl Riddle
George Washington University, USA

Florian Täube
Université libre de Bruxelles, Belgium

 

Background and Topic:

The broad theme of this special issue is on migrant and diaspora entrepreneurs in international entrepreneurship (IE) and their entrepreneurial internationalization (EI) as well as the ways they bridge international contexts and mobilize diverse entrepreneurial resources supporting internationalization processes (e.g., Jones & Coviello, 2005; Dana, 2007; Brinkerhoff, 2009; Terjesen & Elam, 2009; Emontspool & Servais, 2016). These entrepreneurs face complexities regarding business contexts, borders, transnationalism, and in-between dimensions that create theoretical and analytical challenges. The objective of this issue is to theoretically and empirically contribute to IE by exploring whether, how, and why the IE activities of migrant and diaspora entrepreneurs differ from other internationally oriented entrepreneurs (cf. Etemad, 2004; Jones & Coviello, 2005; Jones et al., 2011).

The contextualization of entrepreneurial internationalization processes deserves particular attention. A significant body of research has addressed immigrant entrepreneurship and ethnic entrepreneurship with a focus on the host country context, while research on transnational entrepreneurship, transnational diaspora entrepreneurship, and cross-border entrepreneurship primarily examine the international dimensions between entrepreneurs’ home and host countries (Brinkerhoff, 2009; Çavusgil et al. 2011; Riddle & Brinkerhoff, 2011; Nkongolo- Bakenda & Chrysostome, 2013; Elo & Freiling, 2015; Smart & Hsu, 2004; Emontspool & Servais, 2016). Research on transnational entrepreneurship has shifted the interest from migrants’ economic adaptation to the host country toward their international entrepreneurial activities for opportunity development in dual social fields (Drori, Honig and Wright, 2009). Still, research on internationalization beyond this duality remains underdeveloped, and very little is known about locational dynamics, mechanisms, and processes that contemporary migrants and diasporans employ in international entrepreneurship and international business (cf. Tung, 2008; Brinkerhoff, 2016).

Understanding the entrepreneurial internationalization processes and dynamics of migrants and diasporans may illuminate novel aspects for EI (cf. Jones & Coviello, 2005). These entrepreneurs cross borders and explore and effectuate business opportunities internationally often in demanding contexts that connect markets (Emontspool & Servais, 2016; Elo, 2016). This special issue invites exploration of these IE actors and their EI processes and behaviors. It welcomes the analysis of multiple international entrepreneurial activities, inward and outward internationalization, as well as cooperative arrangements (Welch & Luostarinen, 1993).

Conceptualizing the “international entrepreneur” in IE is a fundamental issue for theory development and requires further debating. This “who” question is highly challenging—both theoretically and practically—especially in the era of increased mobility due to globalization, which blurs the distinction between national and international contexts (e.g., Peiris, Akoorie & Sinha, 2012; Jones et al., 2011; Zahra, Korri & Yu, 2005; Etemad, 2004; Dimitratos & Plakoyiannaki, 2003; McDougall & Oviatt, 2000; Dana, Etemad & Wright, 1999). Beyond the complex nature of the entrepreneur-actor, EI is a dynamically adoptive phenomenon (cf. Etemad, 2004). Therefore, EI processes, their context, and their participants need more attention, for example, regarding respective preconditions, sequences, paths, and behaviors (cf. Drori, Honig & Wright, 2009; Elo, 2016). Differences in how these entrepreneurial actors behave when exploring and exploiting opportunities compared to other international entrepreneurs may stem from their market-specific knowledge, culture, or religion (cf. Riddle et al., 2010; Elo & Volovelsky, 2016 forthcoming). Their cultural, linguistic, religious, and other in-group and in-between features represent particular resources and competences for EI (e.g., Brinkerhoff, 2009, 2016).

Still, very little is known about these people and their particular capabilities or about how these capabilities influence EI. However, they appear to be unique and seem to have distinct mechanisms and advantages (cf. Johanson & Vahlne, 1990; Drori et al., 2009; Elo, Harima & Freiling, 2015; Brinkerhoff, 2016).

Capturing the economic potential and the roles of migrants and diasporans as change-making entrepreneurs in international business and economic development deserves research attention (Usher, 2005; Newland & Tanaka, 2010). Their effects for IE and globalization are broader than what has been acknowledged in the literature (Brinkerhoff, 2009; Riddle et al., 2010; Newland & Tanaka, 2010; Riddle & Brinkerhoff, 2011; Nkongolo-Bakenda & Chrysostome, 2013; Elo, 2016; Brinkerhoff, 2016). Engagements in EI and consequent international business are of importance to innovation, economic development, and competitiveness at the firm to the country level (e.g., Tung. 2008; Brinkerhoff, 2016). These connectors and interlocutors— together with their networks—incorporate multi-actor dynamics and embeddedness, which influence internationalization, its speed, and locus and provide opportunities, capabilities, and direct connections (cf. Johanson, & Vahlne, 2009; Coviello & Cox, 2006; Jansson & Sandberg, 2008; Brinkerhoff, 2016). Global and digital diaspora networks appear to foster internationalization and expansion (e.g., Riddle & Brinkerhoff, 2011; Riddle et al., 2010).

Additionally, diasporas and their in-between advantages may cultivate the development of both business clusters and institutions (e.g., Sonderegger & Täube, 2010; Brinkerhoff, 2016).

The organizational forms, resources, and locations employed by these entrepreneurs may inherently differ from those of other international entrepreneurs. They may access diaspora, inter-ethnic, inter-firm, and international resource systems and networks that are often invisible to outsiders, such as Guanxi and Chaebol, but central for their entrepreneurial activities (e.g., Park & Luo, 2001; Ellis, 2011; Manolova, Manev, & Gyoshev, 2010). Moreover, this special issue examines the plurality and collective dimension of these participants and stakeholders as well as their different roles and positions as entrepreneurs, intrapreneurs, family business owners and managers, business owners and managers, venture capitalists, and change makers (e.g., Elo & Riddle, 2016). Research often overlooks the fact that some family businesses, founded by migrants/diasporans and continued by their descendants, grow to become leading firms and expand beyond their countries of residence. These firms often connect back to their countries of origin from their very outset. Such undertakings may involve a collective approach by members of one or several generations of migrant families (Discua Cruz, Howorth & Hamilton, 2013). Further, this process may be strongly supported by hard-to-imitate resources that have been nurtured over a long period of time by migrant/diasporic families anywhere in the world (Sirmon and Hitt, 2003). However, the way in which migrant resources and international entrepreneurship are intertwined may seem unusual at first because of prevailing misconceptions about migrant families in business around the world (Discua Cruz & Basco, 2017), and insights into how such processes occur have been elusive.

Diverse perspectives around migrant families’ conceptualizations, family dynamics, long-term intentions, and even succession paths that foster IE may provide a more nuanced understanding of migrant family businesses ( Basco & Rodríguez, 2009; Howorth et al., 2010).

The main purpose of this special issue is to advance IE research on migrant and diaspora entrepreneurs and their entrepreneurial internationalization and on the respective opportunity risk management, directions, motivations, location choices, processes, participants, and critical events. This special issue calls for research on transnational and multi-cultural resources, organizational forms, contextual settings, and actor types that provides novel insights that advance EI theory. For example, according to Riddle and Brinkerhoff (2011, 670) “Diasporans who establish new ventures in their countries of origin comprise a special case of international ethnic entrepreneurship.” To complement our theoretical and empirical understanding on these variants of IE, studies exploring such firm, business-network and industry dynamics, and processes in bifocal and multifocal contexts are invited. Multi- and interdisciplinary approaches are particularly welcome.

In summary, building on the extant literature on the broad theme1, this special issue aims to provide a platform for theory development and for the exploration of these special cases in IE.

The Special Issue Seeks to Accomplish the Following:

  • Explore the diversity of the “who” in IE and the respective roles, effects, and organizational forms.

  • Explore and explain migrant-driven EI in terms of both inward and outward internationalization.
  • Examine the dynamics of entrepreneurial diasporic networks and the “glue” of cooperation in internationalization/international business (Schotter & Abdelzaher, 2013).
  • Increase understanding of the different transnational and supranational contexts in IE beyond the dichotomy of home and host country.
  • Identify special resources—namely, the “talent” (Tung, 2008)—stemming from migration and diaspora.
  • Analyze how networks for migrant and diaspora entrepreneurship are developed and used for internationalization and cooperation.
  • Identify success factors in business models of migrant and diaspora IE.
  • Explore international migrant/diasporic family businesses and the extent to which migrant families in business approach IE based on country of origin networks.
  • Analyze the role of migrant and diaspora entrepreneurs as new “international” Argonauts, (cf. Saxenian, 2007) innovators, and change agents.
  • Explore, map, and analyze the international scope and aggregation of migrant and diaspora entrepreneurship and respective international linkages.
  • Examine the impact of differences in socio-cultural and institutional environments between home and host contexts on migrant and diaspora entrepreneurs.
  • Understand how institutional perspectives and policy frameworks influence migrant and diaspora EI.

Focus Themes:

  •  International and transnational entrepreneurs
  •  Migrant and diaspora entrepreneurship
  •  EI, cross-border entrepreneurship and international business
  •  Diaspora networks in IE and business
  •  Migrant/diasporic families in international business
  •  International and transnational resources and mechanisms
  •  Impacts of geographical scope and mobility factors on EI
  •  Entrepreneurial dynamics and socio-cultural drivers
  •  Diaspora business models and multi-context entrepreneurship
  • Institutional perspectives on bifocal and multifocal contexts

 

Timeline and Submission

All submissions should be uploaded electronically at https://www.editorialmanager.com/jien/default.aspx for this special issue between March 1 and March 31, 2017. See the Journal of International Entrepreneurship website for format, style, instructions, and other requirements:

http://www.springer.com/business+%26+management/entrepreneurship/journal/10843

For queries about the special issue, contact one of the corresponding guest editors: Maria Elo (Maria.elo@utu.fi), Susanne Sandberg (susanne.sandberg@lnu.se), Per Servais (per@sam.sdu.dk), Rodrigo Basco (rbasco@aus.edu), or Allan Discua Cruz (a.discuacruz@lancaster.ac.uk).

 

1 This highly focused and specialized literature was initiated by a special issue of the International Business Review in 2011 on international ethnic entrepreneurship and was followed by a special issue of the Journal of International Management in 2013. The forthcoming special issue of the International Journal of Entrepreneurship and Small Business has further extended the literature. Authors are encouraged to examine these special issues.
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