Why should we link regional development to the family business?

Given the influence of economy on individuals, the study of regional or local economy is an issue at the heart of the academic debate and included in governments’ agendas. What variables make a region grow?  What are the processes and dynamics that occur in space and affect growth? Why is there growing in some regions more than in others? Why do some regions experience high growth rates over a certain period of time while others report low rates? What is the difference between growth and development?

We need to take a glimpse over economic history to get some answers. For several centuries, economists and non-economists have wondered about the reasons why some regions grow and others do not. For a long time, it has been considered that the allocation of resources or factors of production such as land, labor or capital are crucial to the growth of a region. This growth refers to the wealth that a region is able to create and that is measured by the Gross Domestic Product (GDP). The numbers and productivity of these factors are responsible for defining the growth differences between countries or regions.

However, land, labor and capital can only be partly responsible for growth: there are regions which are rich in resources but have historically reported low rates of growth. The regional disparities are clear and persistent over time. In 1960, for example, the richest country in the world had a per capita income 39 times higher than that of the poorest country, and that number was nearly doubled by the year 2000. Different regions within a country may follow the same fate, but the differences become more significant in developing countries.

Since traditional variables seem to be unable to explain the differences in growth rates, the “technological change” has been blamed, in turn. Now, what is “technological change”? Knowledge, as an alternative factor of production, has played an important role in explaining the growth of a country or region. This implies there is a significant paradigm shift to understand growth and the factors that determine it. For example, for a few decades now, “growth” has been considered a different term from “development”. When we refer to something growing, it does not imply there is development; but we can certainly consider that growing is one of the stages in any development. That is, development is a broader concept that includes not only wealth, but also the quality of life, social equality and access to opportunities, among others.

This interpretation of inclusive development is paired up with an endogenous vision of space and its factors. Endogenous means “found or coming from within something”. The region is no longer a container full of resources. Its success depends on the components of their socio-economic and cultural systems, such as the entrepreneurial skills of its inhabitants, the production factor endowments, the interaction of economic and social operators to increase or transmit knowledge and skills in decision-making to guide the development process. These elements will facilitate positive externalities, and in the same way, the spread of knowledge and innovation will also enhance the benefits of agglomeration and the organization of business clusters.

This endogenous process is ideal for family businesses, since they can play a key role in local development, both as active participants and as actors who have been historically committed to the region. My proposed study focuses precisely on the link between business-family-region as an economic and social force for development.

Therefore, the research questions on which I am currently working are: Is the family business a factor of economic development? What role does it play in that development? Can it promote economic development processes, such as entrepreneurship? Does it differ from non-family business behaviour? Do differences in behavior have an impact on regional development? What kind of impact does it have?

 

Family-Enterprise Management

“Business management” and “Family-Enterprise management” are two distinct concepts, even though they are closely related. The former refers to the management of business in general, while the latte

r refers to the management of specific types of firms, i.e. family firms.

Surely you think that firms are firms and that there is no need to differentiate between those that are family owned-managed and those that are not family owned-managed.

Let’s think about the business objectives. The aim of any firm is to earn money because positive results are the oxygen that allows firms to survive. Any firm, no matter it is family owned-managed or not, should earn money. So far, this is nothing new, and all firms seem to look alike.

But a different thing is to consider the maximization of results as an aim, the point where firms get their maximum results. The maximization of results, as an objective, stems from shareholders who have invested their own money and they demand the return of this capital; the greater the result of the company means the better the return of the capital.

But as we know, the motivations of the shareholders are not exactly the same. Personal objectives regarding the firm may be different and may not be only related to maximizing benefits. In such context, considering the firm as an institution formed by people, their objectives can vary depending on who are the part of the economic project.

The motivations and objectives of those who are behind the organization represent the point in which “traditional business management” and “family-enterprise management” split, like two highways that go in the same direction but face different obstacles.

The family behind the economic project affects the way an organization is governed and managed. This happens due to the fact that the motivations of the individuals are transmitted to the firm, and the objectives are realigned to adapt both the business system and the family system. Accordingly, the management and the governance of family firms are not exactly the same as in the firms that are not family owned and managed. The governance and management of family firms take into account the interaction of both systems. The family-enterprise management emerges from this interaction.

Although many academics and professionals disagree with this idea, proclaiming that family firms are just like any other firms and the traditional vision of Management should be applied to them, the reality is much ampler than what traditional Management has taught us. Let’s take an example, the Añaños family, the leader of a major Latin American company. The journalist Mr. Saiz reports that the family participates actively in relevant business decisions and if there isn’t unanimity within the family there are two alternatives: either to convince those who don’t agree or let themselves be convinced by those of a different opinion.

How can a family such as the Añaños compete successfully in the market and be a threat for big multi-national companies such as Coca-Cola or Pepsi? Can a firm compete successfully in the market thinking that decisions should preserve family unity? Is survival possible for family business beyond some generations? These and many others are the questions that the “Family-Enterprise Management” attempts to answer.