Internationalization and Performance Outcomes of Entrepreneurial Family SMEs: The Role of Outside CEOs, Technology Sourcing, and Innovation

Abstract

Previous studies suggest that the relationship between strategic change and firm performance depends on the organizational conditions under which the change is initiated and implemented. An important organizational condition that is salient in understanding the performance effect of strategic change is executive leadership. Focusing on outside succession among family businesses in an emerging economy, this study attempts to understand the role of outside chief executive officers (CEOs) on the firm's innovative and internationalization efforts. Based on interviews with 110 small and medium‐sized family companies in Malaysia, this study found that functional and process upgrading strategies depend not only on the firms’ internal and external sourcing strategies but also is moderated by the international experience of the outside CEO. Focusing on both financial and nonfinancial performance outcomes, the mediating effect of internationalization on the relationship between innovation and performance found mixed results. Findings suggest a fully mediating effect between process innovations and financial performance while a fully and partially mediating effect was observed for the relationships between product innovation and process innovation and nonfinancial performance, respectively. Finally, the interaction between international experience of outside CEOs and firm's degree of internationalization (DOI) is positively related to both financial and nonfinancial performance suggesting that the internationalization‐performance relationship is strengthened when an outside CEO possesses greater international experience. © 2013 Wiley Periodicals, Inc.