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Flying the nest in their own way: The internationalization of family firms in Asia

Family firms are the most common form of business organization in the world and are a strong force of economic activity.

Overview

Family firms create jobs and wealth in many countries. In Asia, family enterprises have been key pillars of the economic architecture of their countries. As Asian countries rapidly integrate with the global economy, family businesses are proving to be powerful catalyzers of this process of integration. Thanks to the global presence of such Asian giants, these family firms are becoming vehicles of global linkages—transmitting back best practice and know-how from abroad.

But despite the increasing prominence of family enterprises on the global scene, we know very little about the internationalization journeys of these Asian giants from a family firm perspective. As Asian family businesses shape global production and consumption, understanding their internationalization dynamics and the lessons that they hold is key.

According to the Family Firm Institute, family businesses create an estimated 70–90 percent of global GDP. In the US, family businesses contribute 64 percent of GDP and employ 62 percent of the workforce. In Europe, such enterprises represent 40-50 percent of all jobs. In Asia, they contribute over a third of nominal GDP. Academic and business research often praises family firms for their resilience and long-term vision. While many non-family corporations have suffered and at times lost their identity following economic and financial downturns, family firms continue to survive economic crises and business-cycle shocks.

READ THE GLOBALIZATION OF ASIA'S FAMILY-OWNED BUSINESESS: MYTHS AND REALITIES [PDF]

Key Insights

Family enterprises dominate the global economic landscape not just in terms of their sheer numbers. They are also a strong force of economic activity—creating jobs and wealth in many countries. According to the Family Firm Institute, family businesses create an estimated 70–90 percent of global GDP. In the US, family businesses contribute 64 percent of GDP and employ 62 percent of the workforce. In Europe, such enterprises represent 40-50 percent of all jobs. In Asia, they contribute over a third of nominal GDP.

A study published in Harvard Business Review looked at the financial performance of nearly 150 publicly traded family firms across the US, Europe and Mexico. It found that over the period studied (1997–2009), family businesses outperformed non-family companies in each of the countries examined. Another study of family businesses found that they are less likely to fail compared with other types of organizations, thanks to greater diversity in their boards of directors. Their sustained performance across business cycles can be attributed to factors such as stable leadership, long-term value maximization, employee loyalty, intergenerational social networks and better alignment of management and shareholder objectives. The importance of these factors is recognized by family businesses themselves. For example, when asked what makes family firms distinctive, the director of Die Familienunternehmer, a lobby group for family businesses in Germany, pointed out that ensuring the survival of the firm trumps any desire to expand and to increase profits. According to him, this is the secret behind the good health that family firms in Germany enjoy even in times of crisis. In Europe, family companies were less likely than other companies to cut their workforce during times of economic crisis. In an interview with The Economist, the president of the Portuguese Family Business Association pointed out that family businesses in Portugal would consider layoffs only as a last resort, after salary cuts and investment and dividend retrenchment. In Italy, Marcegaglia Group, a family-owned steel maker, was the only company in the industry that did not lay off workers. According to board and family member Emma Marcegaglia, Italy lost fewer jobs in some sectors than other countries thanks to its large numbers of family firms. Finally, one of the largest listed diamantaires and jewellery family business from India identifies long-term focus as a key factor in the firm’s decision-making.

Despite the resurgence of interest in family enterprises, one area that remains relatively neglected is the internationalization of such firms.

There is scant research—theoretical and empirical—on the internationalization journeys of family firms. This is unfortunate, because going global is becoming a strategic imperative for many family firms. For some, it may even be a matter of survival. Moreover, the growing global predominance of family multinationals from emerging markets further highlights the need for a better understanding of how family businesses expand internationally.

Recommendations

What emerges from our study is that while some factors may hold back the internationalization efforts of family firms (such as conservatism and risk aversion), other family firm characteristics (such as ‘familiness’ and social networks) can support these firms’ efforts to venture outside their home markets. Successful family enterprises can play to the strengths of being a family business while breaking free from the factors that pull them back.

DOWNLOAD THE REPORT THE INTERNATIONALIZATION OF FAMILY FIRMS IN ASIA [PDF]

About The Research

First, we have created a typology of family firms to help us learn about their internationalization dynamics. Based on two dimensions that distinguish family firms from non-family firms—the degree of family control and the generation running the business—we identify four types of family firms: New Roots, Explorers, Dynastics and Royals. Second, we have analyzed the different types of family firm—and their internationalization—through the creation of a unique dataset covering three of the top five largest economies of Asia: China, India and South Korea.

Our empirical analysis sparked further questions: How does the distinctive family-firm DNA—the culture, values, mindset and informal decision-making practices—influence the dynamics of their internationalization efforts? What makes some family firms successful globalizers?

About the Institute for High Performance

The Accenture Institute for High Performance develops and publishes practical insights into critical management issues and global economic trends. Its worldwide team of researchers connects with Accenture’s business leaders to demonstrate how organizations become and remain high performers through original, rigorous research and analysis.

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Research Team
Mark Purdy

Managing Director and Chief Economist

 

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Raghav Narsalay

Managing Director of Innovation Research as well as for India and China Research.


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Ladan Davarzani

Thought Leadership Research Manager

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