4 things to know about family-owned businesses in Asia
The future of international markets will likely be shaped in no small part by the decisions of Asia’s major family-owned firms
When we say “family firm”, what image does that evoke? Perhaps it’s of a quaint mom ’n’ pop operation, catering to a hyperlocal market for one or two generations. In fact, just over half of the 30 biggest firms in 27 developed countries are family-owned, as are 40 per cent of the S&P 500. These are among the world’s most significant organisations.
The family firm is a particularly prevalent form of ownership in the Asia-Pacific region, accounting for 85 per cent of businesses. Some of these family firms are among the largest in the world, such as Samsung Electronics (South Korea), Reliance Industries (India) and Chow Tai Fook (Hong Kong).
Many of the largest family firms from the Asia-Pacific have achieved their immense growth through internationalisation, but we also find small and medium-sized family firms that were “born global” from their inception; something business leaders from around the globe have looked to emulate.
Important developments in Asia
While family firms from other regions have often been slow to internationalise, those from the Asia-Pacific have quickly embraced opportunities abroad. This may help explain why two thirds of the largest family-owned firms in the world are based in Asia.
We might consider the Yeoh-family-run YTL Corporation, a Malaysian infrastructure conglomerate that came to Western attention when it took over Wessex Water in the UK and ElectraNet in Australia. The Thailand-based Charoen Pokphand Group (agribusiness and food, with annual revenue of $45 billion), owned by the Chearavanont family, is another example of a very successful international business – as are LG and the already mentioned Samsung.
Many of the principles that explain internationalisation and business success in the West do not translate to the East
The growth of Asia-Pacific family businesses across international borders has captured the attention of both business leaders looking to protect their domestic markets, and the wider business world, whose future will likely be shaped in no small part by developments in this region. This is the Asian Century after all.
China’s ever-shifting role on the global stage, the development of the Asian Tiger economies, Japan’s economic struggles, and strident growth within the ASEAN region will all have a significant impact on the global business paradigm. As we witness this economic development, we must also consider pivotal demographic shifts that come with massive population growth (or a slowdown in Japan’s case), a growing middle class, and the very real risk of a brain drain that comes when families from these countries send their best and brightest abroad for education.
Do Western principles apply in the East?
In order to understand these opportunities and challenges better, Kimberly Eddleston from North Eastern University, Peter Jaskiewicz from the University of Ottawa, and I developed a multilevel framework that identifies the unique issues that affect the internationalisation of family-owned firms from the Asia-Pacific region.
Such a framework is necessary because of the diverse and contradictory nature of approaches taken by businesses from the region. In the Asia-Pacific, we see governments pushing for companies to internationalise, but also strict restrictions on foreign ownership. We also see great variance in rates of institutional change and economic development, and much diversity among the cultures and societies. Many of the principles that explain internationalisation and business success in the West do not translate to the East.
Family firms often incorrectly assess their own resources as more valuable than external ones
There are three principle levels in our framework that aim to address gaps in our understanding of Asia-Pacific family firms. The first centres on the considerable diversity among business-owning families. The second focuses on organisational-level variables, including how family-owned firms differ in their leveraging of resources. The third captures differences in institutional factors of home and host countries.
This framework informs a special issue of the Asia Pacific Journal of Management, in which the papers can be divided into one of the three areas, according to their primary focus. Naturally, these levels do not exist in a vacuum – they all interact and interplay to form a rich picture of Asian-Pacific family firms that is reflected in the special issue’s papers.
Those four things
First, family firms can be disadvantaged in their internationalisation effort through a sub-par ability to acquire and interpret knowledge due to a homogenous family background. On the plus side, however, family members serve as an organisational memory, with a lower propensity for leaks. However, younger generations can drive strategic change, gearing companies towards an international outlook, by virtue of their international education.
Second, the initial decision to internationalise can be a greater threat to a firm’s socioemotional wealth than a push to further internationalise after this point. This helps explain uneven rates of internationalisation, with families averse to developments that might be perceived as threatening their hold over their own firms.
Third, there’s a difference in internationalisation between family and non-family firms that’s related to the degree of capital that is available. Where there’s a greater degree of capital available, the former are less likely to internationalise, while the latter are more. This extends to financial slack: where there’s a greater degree of this, Asian family firms are less likely to push out, in contrast to both non-family firms and non-Asian family firms.
Finally, family firms often incorrectly assess their own resources as more valuable than external ones, which can hamper internationalisation efforts.
Two thirds of the largest family-owned firms in the world are based in Asia
New understanding brings new questions
These papers – by a diverse range of preeminent authors – move our understanding of Asia-Pacific family firms’ internationalisation leaps forward. In considering the articles as a whole, we can see how multilevel factors affect one another; how the institutional environment shapes the family and how Asian-Pacific family firms are in turn shaped by the culture and values of the family. This multilevel perspective, in turn, reveals why family firms from the Asia-Pacific are unique and why formulas for success developed in the West may not always work in the East.
Yet, there is still a great amount of work to be done:
- How do different family structures and hierarchies affect internationalisation?
- What about the institutional legitimacy of sources of organisational social capital – what happens if these seem unsavoury in an international context?
- And, of course, how do economic and social developments in the different countries shape the picture?
These are among the areas in which we call for greater research. Shedding light on these issues will help us to not just understand the unique paradigm of family firms from the Asia-Pacific, but, given the rapidly shifting international context (with an increasing number of developed economies seemingly turning inwards) the future direction of global travel.