The Factors Affecting Expansion of Family Businesses
Family businesses have different priorities and agendas than nonfamily businesses. Controlling owners are likely to make strategic decisions based on family interests, values, identity and social status. Qian (Cecelia) Gu of Georgia State University’s J. Mack Robinson College of Business conducted a study drawing on a sample of Taiwanese family business groups to examine how two categories of familial considerations affect controlling owners’ decisions to enter a new industry.
Focused familial considerations mainly concern a restricted group of family members who are involved in the business management. A typical example is the exercise of family influence – the goal of having family members retain control over decision-making in the short or medium term.
Broad familial considerations relate to a larger number of family members and span a relatively longer time. A typical example is family dynasty succession, defined as the goal of achieving a smooth transition of the family business to future generations.
These two types of considerations seem to have opposing effects on new industry entries. The authors demonstrate that controlling owners’ focused consideration to exercise family influence is likely to reduce the pursuit of new industry entry, and their broad consideration of family dynasty succession may have the opposite effects.
Gu and her colleagues also showed that the effects of such familial considerations on strategic decisions depend on the controlling owners’ generation, with stronger effects when the founder generation is in control.
The study’s results also help to explain why and how business groups emerge and survive through diversified entries. By showing a path through which family entrepreneurs can evolve into larger family-owned entities and eventually to business groups, the study illustrates the extent to which familial considerations influence firm evolution.
Future studies could examine different forms of focused and broad familial considerations and their distinct implications for other strategic decisions. More research is required to integrate cognitive and social psychology with strategic management theory to advance the understanding of behavioral decisions in family businesses.
It is also important to investigate how controlling owners interact with institutional investors and how such interactions affect strategic decisions and ultimately their business performance.
Learn more as Gu discusses the research:
(if you cannot view this video, click here.)
[vimeo 294440735 w=640 h=360]
For more information, the study is:
Gu, Q., Lu, J. W., & Chung, C.-N. Incentive or Disincentive? A Socioemotional Wealth Explanation of New Industry Entry in Family Business Groups. Journal of Management, OnlineFirst, pp. 1-28. Copyright © 2016 by the authors. Used with permission of SAGE Publications, Inc.