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Family ownership and internationalization processes:

Internationalization pace, internationalization

scope, and internationalization rhythm

Wen-Ting Lin *

Department of Business Administration, College of Management, National Chung Cheng University, Chiayi, Taiwan

KEYWORDS

Family ownership;Internationalizationpace;Internationalizationscope;Internationalizationrhythm

Summary This paper examines the effects of the family ownership with respect to theprocesses of firm internationalization: internationalization pace, internationalizationscope, and internationalization rhythm. Using longitudinal data (20002008) from 772publicly listed firms in Taiwan, I find that firms opted for a (1) rapid pace, (2) a narrowscope, and (3) an irregular rhythm of internationalization when they were high level ofthe family ownership. These findings highlight that the family ownership has the signifi-cant influences on a firms internationalization processes. This research enriches theresearch that links family ownership and international business. The implications of thesefindings for future research are discussed. 2011 Elsevier Ltd. All rights reserved.

Introduction

Family businesses play a major role in leading economicgrowth throughout the world. It is therefore not surprisingthat issues about family businesses and their impacts on firmoperations, including performance (e.g., Bloom & VanReenen, 2006), corporate governance (e.g., Brunninge,Nordqvist, & Wiklund, 2007; Daily & Dalton, 1993; Gabriels-son & Winlund, 2000; Van den Heuvel, Van Gils, & Voordec-kers, 2006), R&D investment (e.g., Chen & Hsu, 2009; Kim,Kim, & Lee, 2008; Munoz-Bullon & Sanchez-Bueno, 2011;Zahra, 2005), product diversification (e.g., Anderson &Reeb, 2003; Chung & Luo, 2008), corporate acquisitions(e.g.,Miller, Le Breton-Miller, & Lester, 2010), outsourcingdecisions (Memili, Chrisman, & Chua, 2011) and internation-alization (e.g., Fernandez & Nieto, 2005, 2006) have long

been the subject of inquiry and empirical research and con-tinue to challenge strategy scholars. Among these issues,the international strategy of family businesses is particu-larly noteworthy because the internationalization of firmshas been the most impressive business phenomenon overthe past several decades (Sapienza, Autio, George, & Zahra,2006); even family businesses that traditionally focused ondomestic markets now have to deal with issues related tointernationalization. A growing body of literature in recentyears has focused on the relationship between internationalstrategy and family businesses. However, previous researchon the relationship between internationalization and familybusiness in general has looked at the degree of interna-tionalization (e.g.,Fernandez & Nieto, 2005, 2006; Graves& Thomas, 2006; Zahra, 2003; Zahra, Neubaum, & Naldi,2007).

Although such research has contributed to ourunderstanding of how managers in family businesses benefit

0263-2373/$ - see front matter 2011 Elsevier Ltd. All rights reserved.doi:10.1016/j.emj.2011.10.003

* Tel.: +886 5 2720411x34321.E-mail address:wentinglin@ccu.edu.tw

European Management Journal (2012) 30, 4756

j o u r n a l h o m e p a g e : w w w . e l s e v i e r . c o m / l o c a t e / e m j

http://dx.doi.org/10.1016/j.emj.2011.10.003mailto:wentinglin@ccu.edu.twhttp://dx.doi.org/10.1016/j.emj.2011.10.003http://dx.doi.org/10.1016/j.emj.2011.10.003http://dx.doi.org/10.1016/j.emj.2011.10.003http://dx.doi.org/10.1016/j.emj.2011.10.003http://dx.doi.org/10.1016/j.emj.2011.10.003http://dx.doi.org/10.1016/j.emj.2011.10.003http://dx.doi.org/10.1016/j.emj.2011.10.003http://dx.doi.org/10.1016/j.emj.2011.10.003mailto:wentinglin@ccu.edu.twhttp://dx.doi.org/10.1016/j.emj.2011.10.003

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from internationalization, it has largely ignored the morefundamental question of how to expand globally.Verme-ulen and Barkema (2002) and Wagner (2004)show that dif-ferent internationalization processes, such as the pace,scope, and rhythm of internationalization, may result in dif-fering performances or differing cost efficiencies. Evenwhen research considers this more fundamental question,studies primarily focus on (1) internal ownership/external

ownership, including CEO ownership, TMT ownership, insti-tutional ownership, and venture-capital ownership, anddoes not look at factors in family ownership that shape afirms internationalization processes; and (2) do not fullyconsider the three dimensions of the internationalizationprocess (George, Wiklund, & Zahra, 2005). Because of theubiquitous family forces in small and medium-sized enter-prises (SMEs) and the varying effects of the internationaliza-tion processes on performance, these omissions representan important gap in the literature on internationalizationstrategy of family businesses. Thus, the major objectiveof this study is to address the gap in the literature, in partic-ular to understand the effects of family ownership on firminternationalization processes, because this is an important

factor contributing to managerial entrenchment (Strange,Filatotchev, Buck, & Wright, 2009).

The remainder of this paper proceeds as follows. Thenext section provides a brief overview of the international-ization processes and internationalization based on themanagerial ownership literature. I then develop hypothesesrelated to the internationalization processes and manage-rial ownership, including the moderating effects of manage-rial discretion. My research design is followed by the resultsof my analyses. I conclude with a discussion of the implica-tions and limitations of my findings, as well as the possiblefuture research directions.

Theory and hypotheses

Internationalization processes: pace, scope, and

rhythm

Vermeulen and Barkema (2002) were the first to discoverthat different paces and rhythms of foreign expansion resultin different levels of firm performance. The study intro-duces three dimensions of the international process: (1)pace, referring to the speed of the internationalization pro-cess, (2) scope, referring to the geographical dispersion ofthe internationalization, and (3) rhythm, referring to theirregularity of the foreign expansion pattern. Pace is atime-based measure and is indicative of how much timepasses before achieving a specific target or a specified levelof performance (Hurmerinta-Peltomaki,2003; Jones & Covi-ello, 2005). Examples include the number of foreign expan-sions a firm undertakes within a certain period of time orthe changes in the degree of internationalization during acertain period of time ( Wagner, 2004). Second, scope isthe geographical extent of a firms expansion process. It isusually indicative of: (1) the number of countries in whichthe company operates or with which the country trades orinvests; or (2) the degree of the spatial concentration offirm activities. Third, rhythm is defined as the regularityof the process, or the rhythm at which new subsidiaries

are established. As shown inFig. 1, a firm establishes itsforeign subsidiaries in a rhythmic, regular pattern; it may,for instance, expand by one subsidiary every year (the twoleft-hand plots). Conversely, another firm, which at theend of the period has an equal number of subsidiaries,may expand following a very different pattern the yearsof rapid expansion are alternated with long periods of inac-tivity (the two right-hand plots). The patterns of the former

firm are defined as optimal, rhythmical expansion; thelatter patterns are defined as irregular expansion.

Family ownership and internationalization

processes: pace, scope, and rhythm

Much of the literature on strategy or organization theoryconcludes that the ownership type can affect firm interna-tionalization (e.g.,George et al., 2005; Sander & Carpenter,1998)because different owners have differing values, incen-tives, and temporal preferences. Some key characteristicsof family-owned and family-managed firms lead us to expectthat their strategies will differ from those of non-family-

owned and non-family-managed firms. The most prominentfeatures are: (1) a desire to maintain the importance of thefamily, stemming from the familys strong personal attach-ment, commitment, and identification with the firm (e.g.,Anderson & Reeb, 2003; Thomsen & Pedersen, 2000); and(2) a desire to control risks, stemming from the concentra-tion of family wealth in a single organization (e.g., Gallo,Tapies, & Cappuyns, 2004; Mishra & McConaughy, 1999;Schulze, Lubatkin, & Dino, 2003). These features imply thatthere is an alignment of interests between the firm and thefamily. An alignment of interests will cause that family firmsoften have longer time horizons to enhance business growththan non-family firms (Bruton, Ahlstrom, & Wan, 2003),creating opportunities for future generations and protecting

the family firm from aggressive competitors (Poza, 2004).Consequently, managers are more likely to pursuit proactiveactivities, such as internationalization (Zahra, 2005).

In general, internationalization can provide potential re-turns to an individual firm (Gande, Schenzler, & Senbet,2009) due to the following reasons. First, internationaliza-tion presents new opportunities for value creation by pro-viding access to new resources, foreign stakeholders, newinstitutions, and the possibility to obtain unique knowledge(Hitt, Tihanyi, Miller, & Connelly, 2006). Such opportunitieshave the potential to translate into higher returns to thosefamily firms that possess rare resources. Fernandez andNieto (2005)noted that many SMEs, even family ones, haveestablished strategic alliances to make up for the lack offinancial and non-financial resources. Second, international-ization helps reduce fluctuations in revenue by spreadingrisks over a number of countries. Third, internationalizationprovides learning benefits as the firms can adopt new busi-ness practices and business processes, thus allowing themto overcome local obstacles to innovation and providingresources to pursue larger-scale R&D projects both ofwhich can ultimately increase potential returns. Loane,Bell, and McNaughton (2006, p. 490) also note that successis often determined by the willingness of decision-makers insmall firms to risk entering new export markets. Thus,managers in family-managed and family-owned firms still

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seek to success by accelerating internationalization, eventhough the firms are less likely to realize the full profitpotentials of these new expansions right away when theyembark on a rapid pace of internationalization (Barkema& Vermeulen, 1998). Perhaps deferred effect of rapid inter-nationalization is due to the fact that family managers aremore willing to devote a certain amount of time and effortto build greenfields, or to screen, select, and implementacquisitions, weaving them into the existing system ofsubsidiaries and carefully nurturing their role within theMNCs because of the alignment of interests between the

firm and the family.In other words, when considered in the light of rapid

internationalization, family members carefully explore theinternational environment required to make family firm suc-cessful. As they engaged in internationalization they willrestructure their mental maps, organizational structures,systems, and processes in order to promote and sustain fam-ily wealth through long-term returns. Based on the abovereasoning, I hypothesize the following.

Hypothesis 1. Family ownership is positively associatedwith a firms pace of internationalization.

Unlike the speed of internationalization, placing ven-

tures in many different countries is likely to involve morecosts than the potential returns because it is more compli-cated to focus on many geographic markets rather than alimited number of markets. This is because each countryhas its own unique features in terms of cultural and institu-tional characteristics; local networks with suppliers andcustomers; language; the nature of contacts with thenational government; education systems, and so forth. Alarger geographic scope implies that the firm will have tounderstand more unique national settings, which willrequire more time and attention than if expansion were totake place in fewer countries. This will therefore requirea larger variety of managerial and organizational experience

because the firm will have to become familiar with newcustomers, to build relationships with new suppliers, toidentify and understand its competitors, and so forth(e.g.,Ghoshal & Bartlett, 1990).

Moreover, depending on the circumstances, subsidiarieswill require a variety of different organizational systemsand processes (e.g., Gupta & Govindarajan, 1991) andcompanies active in different cultures will need to adapttheir structures accordingly (Bartlett & Ghoshal, 1989). Asa result, an increase in the scope of internationalization willinvolve higher costs because of increased complexity and

additional transaction costs (Lu & Beamish, 2004; Tallman& Li, 1996); managerial and firm resource constraints(Kumar, 2009; Wiersema & Bowen, 2008); informationprocessing demands (Carpenter & Sanders, 2004; Hitt,Hoskisson, & Kim, 1997); and coordination difficulties(Hoskisson & Hitt, 1991).

As noted previously, family-owned businesses focus onthe careers, security, and rewards for family members aswell as the prospects for future generations (Miller et al.,2010). In seeking to stabilize future returns, family mem-bers will limit the scope of internationalization because itescalates managerial costs and increases information over-load. Hitt et al. (1997, p. 769) put it succinctly as,...the coordination required (multiple transactions amongmany geographically diverse units), costs more than thebenefits derived from sharing resources and exploitingopportunities. The potential returns to future familymembers will be limited by a wide scope of internationaliza-tion they may even incur unnecessary debts. Consequently, Ipropose the following:

Hypothesis 2. Family ownership is negatively associatedwith the scope of firm internationalization.

Vermeulen and Barkema (2002)argue that firms that fol-low a constant, rhythmic pace are better able to benefitfrom foreign expansion than firms that expand in an

Figure 1 Rhythmic and irregular expansion patterns (Vermeulen & Barkema, 2002).

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irregular, ad hoc fashion. However, a rhythmic pace mayhave a negative effect on MNCs. In general, when firmsset up foreign subsidiaries they face many challenges, suchas time compression diseconomies because of limits to theircapacity to absorb and deal with the novel experiences thatare brought about by expansion. However, a firms resourcesand capabilities are not necessarily constant and the envi-ronment too can also fluctuate. Therefore, if managers

hope to benefit from expanding abroad, they need to bothexplore the international market and to assess the firm scapabilities. Because international expansion requires theability to make changes at any time, a regular rhythm, withan inflexible strategy, is inappropriate. For instance,managers should be able to reduce the scale or scope ofinternational activities when they encounter a global crisisor when there is a lack of resources. This is impossible whenthere is a regular rhythm to their expansion. Flexibility is animportant asset to insure long-term returns for firms withhigh family ownership. Grewal and Tansuhaj (2001) findempirical support for the positive relationship betweenstrategic flexibility and firm performance in dynamicenvironments.

Obviously, the resources and capabilities of family firmsare limited. They may lack critical resources, including, forinstance, human capital (Graves & Thomas, 2006), financialresources (Filbeck & Lee, 2000), or marketing resources(Leonidou, 2004). Previous research on family businesseshas found that family firms lack professional managementand their employees are less likely to receive propertraining as compared to their counterparts in non-familyfirms (Graves & Thomas, 2006). Consequently, these firmsdo not have the necessary international experience or for-eign language skills for overseas engagement (Leonidou,Katsikeas, & Piercy, 1998). Moreover, because of the dy-namic nature of the international marketplace, interna-

tional expansion must remain elastic so that the familyfirm can evaluate and reconfigure its resources to respondwhenever there are new opportunities or dangers. As notedabove, managers of family firms need to adopt a flexiblestrategy toward foreign expansion if they hope to pursueand sustain wealth through long-term potential returns. Thisleads to the following hypothesis:

Hypothesis 3. Family ownership is negatively associatedwith a regular rhythm of firm internationalization.

Methods

Sample and data sources

The sample for this study was drawn from a population ofTaiwans public firms that were listed in the Taiwan Eco-nomic Journal (TEJ) database for nine consecutive years.First, I identified 772 public firms in the TEJ; I then definedan international firm as a firm with as least one foreign sub-sidiary. Second, I selected a nine-year window (20002008)because internationalization processes may evolve overlengthy periods. This window also maximized the numberof firms reporting financial data for consecutive years, thusyielding a sample of 656 firms (5904 observations). Third,data regarding the pace and scope of firm internationaliza-

tion were obtained from two databases, the TEJ and theMarket Observation Post System. I took a 1-year time lag be-tween the independent and control variables and thedependent variables in order to avoid any causality.

The sample covers all industries in Taiwan and they areclassified into three categories, heavy industry, light indus-try, and the high-tech industry, according to the TaiwanIndustry Economics Service. The sample incorporates a high

diversity of industries, as it is likely that compensationstructures differ across industries. The distribution of thesample by industry shows that 51 percent of the firms arein the high-tech industry.

Measurements

Dependent variables

Following Vermeulen and Barkema (2002), I measure thethree dependent variables in a firms internationalizationprocess. First, internationalization pace is the averagenumber of foreign subsidiaries per year. Second, interna-tionalization scope is the number of countries in whichthe firm establishes subsidiaries in a given year. Third,internationalization rhythmis the kurtosis of the first deriv-ative of the number of the firms foreign ventures over time.The rhythm of internationalization is measured by the kur-tosis of this distribution:

kurtosis nn 1

n 1n 2n 3

X xi xs

4( )

3n 12

n 2n 3

where n= number of observations, xi= number of expan-sions in year i, and s =standard deviation in the number of

expansions. Data from the four following years were usedto calculate the kurtosis; for instance, the kurtosis in 2000was measured by using the number of expansions from2001 to 2004. A low kurtosis represents a regular and con-stant expansion pattern, whereas a high kurtosis indicatesan irregular and uneven expansion pattern.

Independent variable

I definedfamily ownershipas the percentage of family cash-flow rights. This is because family firms usually establish ahighly concentrated ownership structure through pyramidstructures and cross-holdings within the family group(Claessens, Djankov, & Lang, 2000a) in East Asia (Claessens,Djankov, Fan, & Lang, 2002; Villalonga & Amit, 2006). Pyr-

amid structures are formed when the firm owns equitystocks of another corporation, which in turn holds sharesof yet another firm. This process of ownership extensionmaybe repeated several times (La Porta, Lopez-de-Silanes,& Schleifer, 1999). I calculated the family cash-flow rightsfollowingClaessens, Djankov, and Lang (2000b). Family Aowns 30 percent of company B, which in turn owns 20 per-cent of company C. In addition, family A directly owns 20percent of company D, which in turn owns 10 percent ofcompany C (this share ownership constitutes the secondchain of control of family A over company C). The cash-flowrights of family A over company C would be 30% 20% +20% 10% = 8%.

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Control variables

The variables identified in previous research as beingimportant determinants in explaining a firms internationalexpansion are included as control variables in this study.

They include industry effect, firm size, firm performance,international experience, current ratio, diversification,and board size. In general, the high-tech industry is mov-ing rapidly toward international markets and is increas-ingly globalizing its sales. The industry effect iscontrolled for by using industrial dynamism. I measuredthe industry effect according to the volatility of industrysales across time, using a regression analysis with a vari-able for each year and a variable for industry sales. Fiveyears of data were used for each equation (for instance,sales from 1994 to 1998 served to predict turbulence in1999). In line with the equation yt=b0+b1 t+et, wherey is industry sales, t is the year, and e is the residual,the volatility of industry sales across time is the standard

error in the regression slope coefficient (b1) divided bythe mean value of the dependent variable.1 Firm size istypically related to extensive international activities. Italso indicates a strong ability and an abundance of re-sources to deal with all types of complex foreign informa-tion (Henderson & Fredrickson, 1996). Firm size wasmeasured as the logarithm of assets in a given year. Man-agers in organizations facing poor performance tend totake greater risks, such as R&D investments and exploita-tion of the international market, motivated in part by be-lief that variations in current performance may result ingood future performance (Greve, 2003; Palmer & Wise-man, 1999). I also included firm performance as a control

variable, which was calculated as the three-year averageof return on assets (ROAs). Firms with international expe-rience are likely to have richer and more accurate cogni-tive maps of foreign conditions, thus enabling them tochoose irregular internationalization, in comparison tofirms with less international experience (Barkema & Shvyr-kov, 2007). Thus, I controlled for the firms internationalexperience, which I measured using the number of yearssince the firms first internationalization. Managers incompanies with a high current ratio can adapt to uncer-

tain or risky environments in foreign markets (Nohria &Gulati, 1996). Therefore, I controlled for the current ra-tio. According to Sander et al. (1998), diversification isalso related to the global strategic posture of the firm.

I controlled for firm diversification by using the Herfin-dahlHirschman Index. Governance structures are also re-lated to international strategy and it is suggested that thesize of the board of directors is positively associated withthe firms degree of internationalization (Sherman, Kas-hlak, & Joshi, 1998). Therefore, I included board size asa control variable, measured as the total number of mem-bers on the board. The measurements of the variables aresummarized in Table 1.

Analytical approach

I tested my hypotheses by undertaking repeated observa-tions of the same set of cross-sectional units (i.e., paneldata) (Greene, 2000). In my sample, the Hausman Test indi-cated that the estimation results of the fixed-effects modeland the random-effects model were inconsistent, and theindividual effects were correlated with the other variablesin the model. Therefore, I employed the more efficientfixed-effects GLS estimation technique to analyze the paneldata.

The GLS approach does not allow for calculations ofthe variance inflation factor (VIF). The VIF was derivedby using an ordinary least squares regression (which ismore conservative than the GLS for the VIF because itdoes not control for the firm and year). The modest cor-relations between the independent variables suggest that

multicollinearity problems were unlikely to occur (thehighest VIF was 1.26, 1.18, and 1.22 for internationalpace, scope, and rhythm model, respectively, well belowthe benchmark of 10).

Results

Table 2presents the means and standard deviations of thecore variables in the models and the correlations amongthe variables. The results indicate that the average firm inthe sample established 1.74 subsidiaries per year and ex-panded to 2.82 different countries per year; the averagekurtosis in the sample was 2.61.

Table 1 The variablesdefinition.

Variable Definition

Internationalization pace The average number of foreign subsidiaries per year

Internationalization scope The number of countries in which a firm establishes subsidiaries in a given year

Internationalization rhythm The kurtosis of the first derivative of the number of foreign ventures of the firm over time

Family ownership The percentage of family cash-flow rights

Industry effect

(industrial dynamism)

Industry sales turbulence across time measure is the standard error of the

regression slope coefficient (b1) divided by the mean value of industry salesFirm size The logarithm of asset in a prior 1 year

Firm performance The priori three-year average of return on assets (ROAs)

International experience The number of years since a firms first internationalization

Current ratio Current asset/Current liabilities

Firm diversification The HerfindahlHirschman Index

Board size The total number of members on the board

1 This study includes all industries in Taiwan, classifying them intothree categories: heavy industry, light industry, and the high-techindustry.

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Table 3reports the coefficient estimates for the main ef-fect of family ownership on the pace, scope, and rhythm ofinternationalization. As the base model, Models 1, 3, and 5are the base models include all of the control variables. InModels 2, 4, and 6, I entered all of the control variables,

along with the family ownership linear term, respectively.The firstFstatistic indicates the overall significance of eachmodel, and the secondFstatistic provides a test for the sta-tistical significance of the added variables in each model.The Fstatistic for change for Models 2, 4, and 6 in Table 3

Table 3 Results of GLS fix-effects regression analyses for firms internationalization processes.a

Variable Internationalization pace Internationalization scope Internationalization rhythm

Model 1 Model 2 Model 3 Model 4 Model 5 Model 6

Family

ownership

0.004 (0.002)* 0.008 (0.003)** 0.005 (0.002)*

Industrial

effect

0.654 (0.074)*** 0.649 (0.074)*** 1.917 (0.130)*** 1.900 (0.131)*** 0.228 (0.163) 0.212 (0.163)

Firm size 0.049 (0.007)*** 0.049 (0.007)*** 0.123 (0.012)*** 0.121 (0.012)*** 0.009 (0.015) 0.007 (0.015)

ROA 0.003 (0.001)***

0.003 (0.001)***

0.018 (0.001)***

0.018 (0.001)***

0.020 (0.002)***

0.020 (0.002)***

International

experience

0.009 (0.010) 0.008 (0.010) 0.042 (0.017)* 0.040 (0.017)* 0.013 (0.021) 0.011 (0.021)

Current ratio 0.007 (0.009) 0.006 (0.010) 0.005 (0.017) 0.003 (0.017) 0.033 (0.021) 0.031 (0.021)

Firm

diversification

0.073 (0.037)* 0.071 (0.037)* 0.169 (0.065)** 0.163 (0.065)* 0.081 (0.081) 0.088 (0.081)

Board size 0.026 (0.005)*** 0.026 (0.005)*** 0.064 (0.009)*** 0.063 (0.009)*** 0.036 (0.011)** 0.035 (0.011)**

R2 0.09 0.10 0.19 0.20 0.04 0.05

F-statistic 25.29*** 22.93*** 84.66*** 75.34*** 25.13*** 22.47***

F-statistic

change

in model

6.22*,b 9.01**,b 3.72*,b

a Number of observations = 5904 (656 cases multiplied by 9 years). Regression parameter appears the standard error (in parentheses)and nonstandardized coefficient.b Model 2 relative to Model 1; Model 4 relative to Model 3; Model 6 relative to Model 5.

* Significant at 5% level (p< 0.05), two-tailed test.** Significant at 1% level (p< 0.01), two-tailed test.*** Significant at 0.1% level (p< 0.001), two-tailed test.

Table 2 Descriptive statistic and correlations.a

Variable Mean SD 1 2 3 4 5 6 7 8 9 10 11

1 I ndustrial effect 0.17 0.10 1.00

2 Firm size 9.44 1.14 0.03 1.00

3 ROA 8.84 10.71 0.19 0.07 1.00

4 International

experience

0.53 0.43 0.32 0.01 0.09 1.00

5 Current ratio 2.38 6.55 0.03 0.05 0.06 0.02 1.006 Firm diversification 0.44 0.26 0.04 0.05 0.06 0.10 0.06 1.00

7 Board size 7.06 2.76 0.10 0.23 0.02 0.14 0.03 0.07 1.00

8 Family ownership 24.96 17.46 0.17 0.14 0.06 0.17 0.07 0.02 0.16 1.00

9 Internationalization

pace

1.74 0.38 0.15 0.05 0.11 0.01 0.03 0.03 0.22 0.07 1.00

10 Internationalization

scope

2.82 0.66 0.25 0.18 0.25 0.03 0.04 0.04 0.27 0.09 0.01 1.00

11 Internationalization

rhythm

2.61 0.82 0.05 0.05 0.14 0.12 0.06 0 .00 0.15 0.01 0.00 0.07 1.00

Correlations whose absolute value exceeds 0.03 are significantly different from zero at the 5% level of significance, two-tailed tests.a Number of observations = 5904 (656 cases multiplied by nine years).

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are significant compared to the control effects (i.e., Models1, 3, and 5) (DF= 6.22, P< .05; DF= 9.01, P< .01; andDF= 3.72, P< .05, respectively, under a two-tailed test).

Using Model 2 inTable 3to examine Hypothesis 1, I findthat family ownership is positively associated with the paceof internationalization (b= .004, P< .05). There is signifi-cant support for this result. A firm with high family owner-ship will have a rapid pace of internationalization, thus

Hypothesis 1 is supported. Hypothesis 2 argues that thereis a negative relationship between family ownership andthe scope of internationalization. In Model 4 of Table 3the linear term for family ownership was negative and sig-nificant (b= .008,P< .01). This suggests that family own-ership will lead to a narrow scope of internationalization.Therefore, Hypothesis 2 is supported. Hypothesis 3 predictsthat family ownership has a negative effect on a regularrhythm of internationalization. In Model 6 ofTable 3, familyownership is negative and significantly related to a firmsinternational rhythm (b= .005, P< .05). Family ownershipwill lead to a low kurtosis, which indicates a regular andconstant pattern of expansion. Thus, Hypothesis 3 issupported.

Discussion and conclusions

The power, influence, and expertise of the family businesshave a strong influence on strategic decision-making in gen-eral and on the degree of internationalization in partic-ular (Zahra & Sharma, 2004). However, the link betweenfamily business and the internationalization process remainsrelatively unexplored. The main goal of this study was toexamine the relationship between family business and theinternationalization process by investigating how familyownership affects the pace, scope, and rhythm of interna-tionalization. My results support some of my predictions.

Family ownership has a positive relationship with the paceof MNC internationalization, whereas family ownership hasa negative effect on the scope and rhythm of MNC interna-tionalization. Thus, this paper contributes to the interna-tional business and family firm literature by emphasizingthe impact of family ownership on the firm internationaliza-tion process.

Implications

My findings have the following implications. As previousstudies have shown, there are several advantages to highfamily ownership of a firm. These include a long-term orien-

tation and a family culture as a source of pride (Poza, 2004).In other words, family owners have strong incentives to in-crease firm value because their wealth is closely tied to firmperformance. In addition, when family owners also managethe firm, the interests of the shareholders and managementare aligned and hence agency problems are effectively min-imized. Miller and Le Breton-Miller (2006) suggest thatlengthy tenures and profound business expertise give own-ers of family-controlled businesses the discretion, incen-tives, knowledge, and resources to invest heavily in thefuture of the firm. Their long-term horizon is reinforcedby their inclination to insure the success of the firm whenit is passed onto the next generations (Casson, 1999). In

contrast, hired managers, unless they are closely monitoredby family owners, may have shorter time horizons in theirdecision making because their upward mobility outside ofthe firm and their financial rewards within the firm typicallyare both tied to short-term performance.

However, such firms also face a number of drawbacks,ranging from a lack of qualified personnel, a lack of altru-ism,2 and a tendency to be overly risk-averse (Kets De Vires,

1996). The literature and my findings suggest that businesscan choose narrow internationalization scope or irregularinternationalization rhythm as a way to maintain the familylong-term wealth. Potential long-term return for the familyfirm when contemplating internationalization opportunities,augment risk bearing which in turn increases its willingnessto jeopardize that transient risk strategy (by internationaliz-ing, even though this strategy may rise financial risks at pres-ent). This is similar toGomez-Mejia, Haynes, Nunez-Nickel,Jacobson, and Moyano-Fuentess (2007)study that finds thatfamily-owned olive-oil mills may be willing to exchangegreater financial risks if this is what is necessary to preservethe familys socio-emotional wealth. Likewise, Berrone,Cruz, Gomez-Mejia, and Larraza-Kintana (2010) show that

family firms engage in less pollution in order to preservethe image of the family (i.e., the long-term benefit), eventhough this may be a risky business strategy. In short, familyfirms often utilize a potential returns reference point tomake business decisions, leading to riskier strategic chooseto capture potential family fortune.

My findings have some interesting implications for mana-gerial practice. First, by the 1990s the world had entered anera of global competition, in which national borders were nolonger barriers. By entering international markets a firm isin a better position to strategically deploy and leverage itsresources. For example, we already know that participationin international production networks is critically important

for the development of a flexible domestic supply baseand the consequent rapid internationalization. All familybusinesses now face mounting pressures to compete in highrisk, complex, and rapidly changing international markets.Given the extent of the recognized importance of the rapidgrowth of MNCs in the newly industrialized economies(NIEs), where there is high family ownership, such as in Tur-key, Chile, and Russia (Filatotchev, Stepjan, & Jindra,2008), the following question needs to be addressed: Howdoes tight control by family ownership affect the firm inter-nationalization process? My findings suggest that first, mem-bers of the board of directors and of the top managementteams of firms with high family ownership should realizethat many family firms may not aggressively pursue interna-

tional expansion because of a willingness to forego financialreturns to achieve noneconomic benefits, such as continuinga tradition as a local producer. Members of the board ofdirectors and of top management teams contemplatinginternational expansion should take into account the rapidpace of internationalization, the narrow scope of interna-tionalization, as well as the irregular rhythm of internation-alization. Second, the increasing internationalization of the

2 Altruism implies that the individual is allowed to satisfy bothaltruistic (other-regarding) and egotistic (self-regarding) prefer-ences simultaneously (Schulze, Lubatkin, Dino, and Buchholtz,2001).

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current business environment and the accompanying needfor foreign information often motivate firms to expand theirresources through outsider partners, such as through acqui-sitions or joint ventures. This being the case, however, highfamily ownership will be an obstacle to such expansion. Re-cent studies based on the stagnation perspective find thatalthough the majority of theoretical and empirical researchexplicitly recognizes the prevalence of superior perfor-

mance by family firms throughout the world, acquiring com-panies tend to regard family firms as unprofessional andinefficient organizations, thus negatively affecting their val-uation when compared with nonfamily firms (Granata & Chi-rico, 2010; Sciascia, Mazzola, Astrachan, & Pieper,forthcoming). Therefore, family firms need to send positivesignals to their potential acquirers so as to mitigate suchgenerally negative perceptions. Third, family businessesare likely to be more successful expanding internationallyif they are amenable to using information technology, ifthey are capable of innovation, if they are committed tointernationalization, and if they are able to distributepower and utilize available resources. In general, theassignment of nonfamily professional managers will have a

positive influence on international performance. For exam-ple,Claver, Rienda, and Quer (2009) show that a long-termvision and the presence of nonfamily managers are posi-tively related to entry modes with stronger internationalcommitments, even though self-financing issues may limitsuch commitments. Thus, family businesses should reservesome top management positions for nonfamily members toengage in successful international expansion and growth.Fourth, if a family intends to widen its scope of internation-alization, it should first form network relationships withoverseas firms that possess international capabilities. Re-cent evidence suggests three key paths to internationaliza-tion for family firms. These include (1) the level of

commitment to internationalization, (2) the financial re-sources available, and (3) the ability to commit and usethose financial resources to develop the required capabili-ties (Graves & Thomas, 2008). International networks willallow small firms to overcome resource constraints andcapability limitations if they can tap into those networksthat provide access to external resources (Musteen,Francis, & Datta, 2010). Thus, international networks mayhelp family businesses commit sufficient financial resourcesto implement an internationalization strategy.

Avenues for future research and limitations

It is also worth noting the limitations to this research. First,my sample focuses on Taiwanese listed firms because thisenabled us to clarify the relationships among family owner-ship, the internationalization process, and R&D investment.But my sample may have limited generalizability to othercontexts (for instance, smaller private firms that may havedifferent approaches to managerial ownership and theinternationalization process).

Second, I did not consider variations in managerial styleamong the listed firms. Different management styles canlead to distinct differences in the internationalizationdecision-making process. A firm managed by an outside(non-family) professional will be less influenced by family

considerations, whereas a firm managed by a family mem-ber will be heavily influenced by family obligations. Hence,my study suggests that the impact of the style of manage-ment, including family management, professional familymanagement (e.g., a family owner who delegates authorityboth to a non-family member manager and a family membermanager) (Chua, Chrisman, & Bergiel, 2009), and non-familyfirms, is a critically important area for future research.

Acknowledgements

Wen-Ting Lin acknowledges financial support from the Na-tional Science Council (NSC 98-2410-H-194-114-MY3). I amgrateful to the Editor, Professor Laroche, and two anony-mous reviewers for their insightful comments.

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Wen-Ting Lin is an Associate Professor ofDepartment of Business Administration inthe College of Management at National

Chung Cheng University. She received herPh.D. in international business managementfrom National Taiwan University. Theresearch arena and teaching courses includeinternational business management, orga-nizational theory, and corporate gover-nance. Her research has been published in

Journal of International Management, European Journal of Inter-national Management, Journal of World Business, International

Journal of Human Resource Management,Sun Yat-Sen ManagementReview(Chinese)Management and Organization Review, Asia PacificJournal of Management, International Business Review.

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