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”
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.
familyfirmblog.wordpress.com 