The role of family firms’ generational heterogeneity in the entry mode choice in foreign markets

Abstract

This paper investigates how important sources of heterogeneity shape the way in which family firms (FFs) enter foreign markets. By integrating insights from International Business and Family Business literature, we claim that the interplay between the generation ruling the firm and the presence of non-family board members direct the choice between a greenfield investment vs. the acquisition of a local unit. FFs prefer to enter foreign markets through greenfield investments, especially when run by the founders, due to their emotional attachment to the firm and to the lack of adequate organizational capabilities to undertake and manage cross-border acquisitions. The bias towards greenfield investments is corrected by the presence of non-family members in the board. However, we claim that non-family directors’ voice is on average more effective in second-generation FFs as they show an average lower SEW orientation, while FFs surviving in the long term are those ruled by the successors more authoritative in imposing attention on the preservation of family values. Therefore, third-and-beyond generation FFs present a higher SEW orientation as well as diversified organizational capabilities, which make them less incline to follow external advice. We test our hypotheses on a sample of 1,849 manufacturing initiatives undertaken abroad by 532 Italian FFs in the period 2000–2013.