Family Firm Internationalisation: A Network Perspective [1st ed. 2020] 978-3-030-28519-7, 978-3-030-28520-3

Table of contents :
Front Matter ....Pages i-xxi
Introduction to the Book, Family Firms, and Internationalisation (Tanja Leppäaho, Jaakko Metsola)....Pages 1-37
Methodology and Case Studies (Tanja Leppäaho, Jaakko Metsola)....Pages 39-72
International Networking Typology, Strategies, and Paths of Family Firms (Tanja Leppäaho, Jaakko Metsola)....Pages 73-120
Conclusions: Implications of Family Firm Internationalisation from a Network Perspective (Tanja Leppäaho, Jaakko Metsola)....Pages 121-135
Back Matter ....Pages 137-139

Citation preview

Family Firm Internationalisation A Network Perspective

Tanja Leppäaho Jaakko Metsola

Family Firm Internationalisation

Tanja Leppäaho · Jaakko Metsola

Family Firm Internationalisation A Network Perspective

Tanja Leppäaho LUT University Lappeenranta, Finland

Jaakko Metsola LUT University Lappeenranta, Finland

ISBN 978-3-030-28519-7 ISBN 978-3-030-28520-3  (eBook) https://doi.org/10.1007/978-3-030-28520-3 © The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Switzerland AG 2020 This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, expressed or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. Cover illustration: © Melisa Hasan This Palgrave Pivot imprint is published by the registered company Springer Nature Switzerland AG The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland

To Emilia and Mikael, love and inspiration of my life Tanja Leppäaho To Mikael, Julius and Jenna, my teachers of love and happiness Jaakko Metsola

Preface

Internationalisation has long been an imperative for many firms to survive in an increasingly globalised world economy. Thus, it comes as no surprise that the research on international business and the internationalisation of firms has evolved into its own discipline attracting scholars worldwide to study the complexities of conducting business across borders. The internationalisation of Family Firms (FFs) has been the latest and trending subtopic within the discipline. Given the large amount as well as the special nature of FFs in the global economy, it is unsurprising that they are of special interest. The first notable scientific article on FF internationalisation was published in 1991 by Miguel Angel Gallo and Jannicke Sveen in Family Business Review, titled Internationalizing the Family Business: Facilitating and Restraining Factors. Although the research on FF internationalisation has witnessed exponential growth over the decades to this date, the same questions that Gallo and Sveen (1991) aimed to answer almost three decades earlier—What factors do really facilitate and restrain the internationalisation of FFs? What makes the internationalisation of FFs special?—are still being explored. The paradox of ‘FFs are and are not like other firms’ inspired Tanja Leppäaho (previously Kontinen) in the mid-2000s and, later, Jaakko vii

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Metsola in the mid-2010s to take up the challenge on studying FF internationalisation. Both were particularly inspired by the lack of network perspectives on FF internationalisation. After all, the world, the business environment, and the research on international business and internationalisation themselves had transformed into networked contexts and network-focused phenomena. In the research context, different seminal theories and concepts from the network model of internationalisation (Johanson & Mattsson, 1988) and international new ventures (Oviatt & McDougall, 1994) to born globals (Knight & Cavusgil, 2004) and the iterations of the traditional Uppsala model (e.g. Johanson & Vahlne, 2009; Håkanson & Kappen, 2017) included networks and network relationships as key antecedents and factors in firm internationalisation. Ironically, the evolution of internationalisation research towards network perspectives has occurred concurrently with the growth of FF internationalisation research; however, the latter has largely ignored the network perspectives. During her academic career, Leppäaho has not only developed into a leading and much-cited scholar in FF internationalisation (Google Scholar, 2019; Pukall & Calabrò, 2014), but is an expert and advocate of network perspectives in FF internationalisation. In particular, social capital and social network ties have been her areas of focus. Under her supervision, Metsola conducted his Master’s thesis on the FF internationalisation from a network perspective in 2015, which was awarded by the Finnish Family Firms Association as the best Master’s thesis on FFs in 2016. Currently, both Leppäaho (Professor, Academy of Finland Research Fellow) and Metsola (Junior Researcher, Ph.D. Candidate) work at the School of Business and Management in LUT (Lappeenranta-Lahti University of Technology) University in Finland. This is one of the leading schools in the world in international entrepreneurship research, especially in the context of born-globals (Dzikowski, 2018; Servantie, Cabrol, Guieu, & Boissin, 2016). In such a fruitful environment, it has been great to conduct research and increase knowledge on FF internationalisation. The present book is based on a distinguished 5-year research project (http://ife.fi) awarded to Leppäaho by the Academy of Finland. The project, called Building a Theory on the Family Business Internationalisation

Preface     ix

Process: Pathways and Network Ties in Focus (with the informal name IFE, International Family Enterprise), deals with the internationalisation of FFs from network and process perspectives in special. In addition to the large pool of empirical case studies we present in this book, the IFE project managed by Leppäaho and assisted by Metsola, covers studies on historical long-enduring FFs, and a survey-based dataset. The book in your hands is an outcome of a genuine interest in and fascination about international FFs oftentimes representing the most human and responsible side of business life in the whole world. Their importance to the world economy and our everyday lives is often neglected, but this should not be the case, being that family firms make about 80% of the company population through the world. It is, hence, self-evident that they deserve all the possible attention and appreciation. This book is one of the steps towards a better world for international FFs or ones willing to become international. In particular, as the term ‘pivot’ in the title indicates, we intend to draw the attention of scholars, teachers, managers, and students to the contemporary yet still largely ignored topic of FF internationalisation from a network perspective. Owed to being a diamond in the rough as a research topic, we do not only settle for summarising prior knowledge. We—and perhaps more importantly—embark upon an empirical investigation of our own, based on a large number of interviews and secondary data. We believe that this mix of theory and practice in the form of a Palgrave Pivot book provides readers with digestible insights related to international networking typology, strategies, paths, and success factors, especially in relation to FFs. Lappeenranta, Finland

Tanja Leppäaho Jaakko Metsola

References Dzikowski, P. (2018). A bibliometric analysis of born global firms. Journal of Business Research, 85, 281–294. Gallo, M. A., & Sveen, J. (1991). Internationalizing the family business: Facilitating and restraining factors. Family Business Review, 4(2), 181–190.

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Google Scholar. (2019). Tanja Leppäaho’s profile. Available at https://scholar. google.fi/citations?user=ye6xbeAAAAAJ&hl=fi. Håkanson, L., & Kappen, P. (2017). The ‘casino model’ of internationalization: An alternative Uppsala paradigm. Journal of International Business Studies, 48(9), 1103–1113. Johanson, J., & Mattsson, L. G. (1988). Internationalisation in industrial systems—A network approach. In N. Hood & J. E. Vahlne (Eds.), Strategies in global competition (pp. 287–314). London: Croom Helm. Johanson, J., & Vahlne, J.-E. (2009). The Uppsala internationalization process model revisited: From liability of foreignness to liability of outsidership. Journal of International Business Studies, 40, 1411–1431. Knight, G. A., & Cavusgil, S. T. (2004). Innovation, organizational capabilities, and the born-global firm. Journal of International Business Studies, 35(2), 124–141. Oviatt, B. M., & McDougall, P. P. (1994). Toward a theory of international new ventures. Journal of International Business Studies, 25(1), 45–64. Pukall, T. J., & Calabrò, A. (2014). The internationalization of family firms: A critical review and integrative model. Family Business Review, 27(2), 103–125. Servantie, V., Cabrol, M., Guieu, G., & Boissin, J. P. (2016). Is international entrepreneurship a field? A bibliometric analysis of the literature (1989– 2015). Journal of International Entrepreneurship, 14(2), 168–212.

Acknowledgements

We want to cordially thank the financial assistance by the Academy of Finland (Grant Number 308667, 434 485 EUR, 1.1.2017–31.7.2022) and Foundation for Economic Education. We also want to thank our dear colleagues Professor Eriikka Paavilainen-Mäntymäki, Professor Sarah Jack, Professor Emmanuella Plakoyiannaki, and Professor Pia Arenius and all the scientific community of LUT and international conferences for their insightful comments in various phases of the IFE project and earlier research efforts.

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Contents

1 Introduction to the Book, Family Firms, and Internationalisation 1 1.1 Introduction 2 1.2 The Distinctive Family Firms: Theories and Perspectives 5 1.2.1 The ‘Old’ School of Family Firm Theories and Perspectives 7 1.2.2 The ‘New’ School of Family Firm Theories and Perspectives 8 1.2.3 Heterogeneity Among Family Firms: FamilyControlled Versus Family-Influenced Firms 12 1.3 Firm Internationalisation: Theories and Perspectives 13 1.3.1 Internationalisation of SMEs: Networks in Focus 17 1.3.2 Social Capital and Network Ties in Internationalisation 19 1.3.3 Internationalisation of Family Firms 21 References 26

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2 Methodology and Case Studies 39 2.1 Methodology 40 2.1.1 Data Collection 45 2.1.2 Data Analysis 46 2.2 Case Firm Descriptions: Internationalisation Profiles and Socioemotional Wealth 48 2.2.1 Family Firms with Low SEW 49 2.2.2 Family Firms with Medium SEW 53 2.2.3 Family Firms with High SEW 65 References 71 3 International Networking Typology, Strategies, and Paths of Family Firms 73 3.1 International Networking Typology of Family Firms 74 3.2 International Networking Strategies of Family Firms 74 3.3 International Networking Paths of Family Firms 80 3.4 Narrow Network Maximisers (NNMs) 83 3.4.1 Regional NNMs 84 3.4.2 Global NNMs 87 3.4.3 The Pros and Cons of Narrow Network and Relationship Commitment Management 91 3.5 Broad Network Enablers (BNEs) 93 3.5.1 The Pros and Cons of Broad Network and Portfolio Management 99 3.6 Overview of the Success Factors Behind Family Firms’ International Networking 101 3.6.1 High-Quality Products in Global Niches and Preventing Bifurcation Bias 101 3.6.2 Choosing the Suitable Foreign Partners and Customers 112 3.6.3 The Family Firm Status as an Advantage for Marketing and Relationship Building 116 References 118

Contents   xv

4 Conclusions: Implications of Family Firm Internationalisation from a Network Perspective 121 4.1 Summary of the Book and the Findings 122 4.1.1 Internationalisation of Family Firms: Network Perspective 122 4.1.2 Family Firms Narrowly Maximise or Broadly Enable Their Foreign Network Ties to Build Successful Internationalisation 123 4.1.3 Implications for Managers and Researchers: Summarising the Success Factors in FF International Networking 129 References 132 Index 137

Abbreviations

BAG Born-Again Global BG Born-Global BNE Broad Network Enabler CEO Chief Executive Officer CFO Chief Financial Officer EVP Executive Vice President FF Family Firm FSTS Foreign Sales to Total Sales INV International New Venture NC Network Closure NNM Narrow Network Maximiser SC Structural Hole SEW Socioemotional Wealth SME Small- and Medium-Sized Enterprise

xvii

List of Figures

Fig. 1.1 Intertwinement of family, business, and ownership axes in the development of FFs as presented by Gersick et al. (1997) Fig. 1.2 Internationalisation of FFs Fig. 2.1 SEW distribution among the case firms Fig. 3.1 The international networking paths of regional NNMs, global NNMs, and BNEs

6 25 48 81

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List of Tables

Table 2.1 Basic information about the case firms and the interviews Table 3.1 Descriptions of narrow network maximisers (NNMs) and broad network enablers (BNEs)

42 75

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1 Introduction to the Book, Family Firms, and Internationalisation

Abstract  Family firms (FFs) comprise a dominant firm population and economic force globally. It is a distinctive firm type owed to the involvement of family members in both ownership and management. Economic and noneconomic (socioemotional wealth—SEW) goals are often intertwined. This affects strategic decision-making. Internationalisation, as a highly strategic decision and a process involving potential risks and rewards, is often approached differently than in non-FFs. In a world where networks and networking are increasingly relevant for firms to conduct and expand their businesses, FFs provide an interesting context, wherein internally strong relationships may both facilitate and restrain international networking. In this chapter, we introduce the distinctive nature and internationalisation of FFs. The seminal theories in FF and internationalisation research are presented, with a special focus on the roles of networks. Additionally, we briefly introduce the empirical aim and contents of this book. Keywords  Family firm · Internationalisation · Network Social capital · Socioemotional wealth

© The Author(s) 2020 T. Leppäaho and J. Metsola, Family Firm Internationalisation, https://doi.org/10.1007/978-3-030-28520-3_1

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1.1 Introduction In this book, we investigate the internationalisation of family firms (FFs) from a network perspective. The family is the original economic unit, and from it all other economic organisations are derived (Schulze & Gedajlovic, 2010). As recently as the beginning of the twentieth century, all businesses were family-owned: the presence of the family in the business was taken for granted, and there was thus no need to label a business as a FF. FFs have a substantial economic impact worldwide; they account for over two-thirds of all firms and constitute approximately half of the total GDP (Shanker & Astrachan, 1996). A considerable impact is also present in Europe, in which FFs account for more than 60% of all the overall company population (European Commission, 2019). Furthermore, in Finland, the geographical context of the case firms analysed in the current book, FFs are the significantly the most common firm type among small-sized firms with a proportion of 75% (Finnish Family Firm Association, 2017). However, FFs have traditionally been a neglected group of firms attracting very little attention and appreciation both in societal and academic discussion (cf. European Commission, 2019). Management researchers tend to be particularly positive about family governance (Schulze & Gedajlovic, 2010). The unification of ownership and management enables the CEO to make opportunistic investments and/or rely on intuition (Gedajlovic, Lubatkin, & Schulze, 2004). Hence, FFs have the potential to adapt to changing environments, launch products and enter markets that investor-controlled or managerially led firms are unable to access (Dyer & Whetten, 2006). In adverse economic conditions, FFs have been found to sustain more profitable businesses than firms with different ownership structures (Sirmon & Hitt, 2003). FFs have been considered different from non-FFs due to the controlling family’s structural, cognitive and relational embeddedness in the business, affecting norms, principles, and social relationships (Bird & Zellweger, 2018; Zellweger, Chrisman, Chua, & Steier, 2019). Social relationships within FFs (i.e. intra- and extra-family relationships, and intra- and extra-firm relationships) become extensively intertwined; the

1  Introduction to the Book, Family Firms, and Internationalisation     3

controlling family’s decision-making power affects the development of family and firm resources and also influences the latitude given to family members, nonfamily members and external stakeholders for achieving economic and noneconomic goals in the FF (Zellweger et al., 2019). Indeed, the value FFs attach to noneconomic, family-centric goals differentiate them from non-FFs. These goals are often referred to as socioemotional wealth (SEW), which encompasses the preservation of family control, identification, emotional attachment, binding social ties and the renewal of family bonds through dynastic succession, in addition to, or even beyond, economic business goals (Berrone, Cruz, & Gómez-Mejía, 2012; Chrisman & Patel, 2012; Gómez-Mejía, Haynes, Núñez-Nickel, Jacobson, & Moyano-Fuentes, 2007; Nason, Mazelli, & Carney, 2018). With regard to internationalisation, it has been recognised that substantial numbers of FFs and other entrepreneurial firms are active in the international arena (Casillas & Acedo, 2005). FFs still dominate the global economic landscape and their business has become more and more international, FF internationalisation becoming a significant research area (Fernandez & Nieto, 2005, 2006; Graves & Thomas, 2006, 2008), which has eventually developed into a research niche of its own (Kontinen & Ojala, 2010; Pukall & Calabrò, 2014; Reuber, 2016). Nevertheless, despite the substantial growth of research in the area, scholars still disagree about whether the influence of family ownership on internationalisation is positive or negative (Kontinen & Ojala, 2010; Pukall & Calabrò, 2014). However, we are still not close to a state of knowing how FFs’ internationalisation differs from the internationalisation of firms with other ownership structures. Chrisman, Chua, Pearson, and Barnett (2012, p. 267) noted that ‘a theory of the family firm must be able to … explain variations among family businesses ’. In a similar manner, Arregle, Hitt, and Mari (2019) and Hennart, Majocchi, and Forlani (2019) recently called for studies on FF internationalisation through their heterogeneity. Therefore, in the empirical study presented later in this book, we intend to study family-controlled firms with high family ownership and involvement in the business, which differ from family-influenced firms with lower family ownership and involvement (Arregle, Naldi,

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Nordqvist, & Hitt, 2012; Sirmon, Arregle, Hitt, & Webb, 2008; Westhead & Howorth, 2007). We then discuss perspectives attached to family-controlled firms, such as SEW (e.g. Kotlar, Signori, De Massis, & Vismara, 2018), in relation to the international networking of FFs, the main topic of this book. Regarding the international networking activity of FFs (Kampouri, Plakoyiannaki, & Leppäaho, 2017; Kontinen & Ojala, 2010, 2012; Pukall & Calabrò, 2014), we know very little. We do know that FFs typically possess network ties with a high level of trust, closeness, and long-term commitment (Arregle, Hitt, Sirmon, & Very, 2007; Roessl, 2005; Salvato & Melin, 2008; Zellweger et al., 2019); however, little work has been done on the process and the strategic approach of FFs to conduct their international networking, manage the foreign network ties, and use their FF-specific features as possible advantages for international networking and internationalisation. Recent calls for research on FF internationalisation have noted the heterogeneity of FFs (Arregle et al., 2019; De Massis, Frattini, Majocchi, & Piscitello, 2018; Hennart et al., 2019) as a possible key to understanding their differing internationalisation strategies (Hennart et al., 2019) based on differing family structures (Arregle et al., 2019). Therefore, in addition to providing a general overview of the current state of research on FF internationalisation and international networking, our aim with this book is to conduct an in-depth empirical investigation of our own, using a large case firm sample of 24 Finnish FFs that are mostly family-controlled (cf. family-influenced), small-sized, and highly international. Our main research questions are as follows: – How do FFs build and maintain network ties to foreign markets? – How do FFs embrace their FF-specific features for successful international networking? The contents of the book are divided as follows. In this chapter, we introduce readers to the theoretical foundations behind FF as a firm type as well as the internationalisation and international networking of firms in general and FFs in particular. In Chapter 2, we describe the methodology of our empirical study in the book and present case firm

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descriptions in relation to internationalisation history and SEW endowments. In Chapter 3, we present the findings of the empirical study, focusing on two main topics: (i) international networking typology, strategies, and paths of FFs and (ii) success factors behind international networking of FFs. Finally, in Chapter 4, we summarise the contents and contributions of the book and provide contextual, methodological, and practical implications and suggestions for future research, teachers, and practitioners.

1.2 The Distinctive Family Firms: Theories and Perspectives What makes FFs special among firms? Gersick, Davis, Hampton, and Lansberg (1997) described FFs in terms of a diagram containing family, ownership and business dimensions, laid out on three axes (see Fig. 1.1), the idea was that a perturbation in any of the three axes would influence the other two. In the ownership dimension, one can identify the phases of controlling owner, sibling partnership, and cousin consortium. In the business dimension, the phases of start-up, expansion/formalisation, and maturity are typical. The phases in the family dimension can be described in the terms of young business family, entering the business, working together, and passing the baton. In addition to the typical ‘major’ phases in each axis, Gersick et al. (1997) describe several smaller occasions influencing the dynamics of FFs such as (i) Mr. A feeling trapped in unending squabbles with the father, but the profits being so flat that changes are required and the wife of Mr. A being tired of Mr. A working so much and having no time for their daughter; (ii) Mr. B’s brother’s request, a shareholder of the company, to employ his son; he had already employed his own daughter a year earlier and is considering if his son would join the firm too and they had been warned against employing too many family members; (iii) Mr. C’s daughter, vice president for marketing, wants to take the company in a new strategic direction, but Mr. C’s son, operations manager in the manufacturing plant, is opposed to any major

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Fig. 1.1  Intertwinement of family, business, and ownership axes in the development of FFs as presented by Gersick et al. (1997)

changes; the board of directors and senior managers are split on the issue. Mr. C feels this might be related to competing for the role of successor. Accordingly, FF is a distinctive form of a firm type in which the performance is contingent upon family ownership, family control, generations in place alone and in combination (Villalonga & Amit, 2006). How the role of family ownership influences the behaviour of an FF and the advantages and disadvantages FF might possess have been discussed via various theories and perspectives. We briefly outline the major ones below, first examining the traditional theories and perspectives (i.e. agency theory, stewardship theory, and the resource-based view of the firm), and second, investigating the latest and overarching theories and perspectives (i.e. socioemotional wealth perspective, bifurcation bias, and ability and willingness perspective).

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1.2.1 The ‘Old’ School of Family Firm Theories and Perspectives Agency theory suggests that conflicts might arise between the owners of a firm (principals) and the managers (agents) who operate in accordance with the contract and on behalf of the owners. The goals and, thereby, decisions of the two might differ, resulting in asymmetric information and challenges for the principals to monitor the activities of the agents (Eisenhardt, 1989). Consequently, agency costs, referring to the costs of negotiating and executing incentives to align the actions between the principals and the agents, arise (Karra, Tracey, & Phillips, 2006). In the context of FFs, agency costs are less likely to exist or might be easier to resolve than in non-FFs because of the aligned interests of the family members (Fama & Jensen, 1983) and the reciprocal and symmetrical altruism between the family owners and family managers (Karra et al., 2006). Decision-making is effective due to low agency costs, and family owners can make agile and strategic decisions that maximise the benefits of the firm and family in the long term (Fama & Jensen, 1983). Related to the aforementioned, the stewardship theory (Davis, Schoorman, & Donaldson, 1997) suggests that family managers act as stewards to serve for the collective good and organisational needs instead of pursuing individual benefits at the expense of others. Family managers feel special duty and commitment to the interests of the family owners and seek to improve the performance of the organisation as a whole in a longterm orientation. According to the stewardship theory, family managers are considered trustworthy assets for the FF who consider all stakeholders when making decisions (Le Breton-Miller & Miller, 2009). Shared identity, responsibility, and history among family members and owners establish a fruitful environment to contribute to and co-create the firm’s performance, strong internal social capital, and reputation in the long-term generation after generation (Arregle et al., 2007; Eddleston & Kellermanns, 2007). Evidently, FFs have distinctive relational and processual resources which can be assessed more closely via the resource-based view (RBV) of the firm. This view suggests that there can be unique and valuable resources in a firm that are difficult to be imitated and therefore provide the firm with superior and long-term competitive advantages and

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performance (Barney, 1991). These unique, competitively advantageous resources in FFs can be described as integral and synergistic with respect to family involvement and interactions, the bundle of which is referred to as ‘familiness’ (Chrisman, Chua, & Steier, 2005; Habbershon & Williams, 1999; Habbershon, Williams, & MacMillan, 2003). The bundle of resources can be also described as family capital, which stems from human, social, survivability, patient, and governance structures (Sirmon & Hitt, 2003). Carney (2005) argues that parsimony, personalism, and particularism within FFs can promote cost-efficiency, social capital, and entrepreneurship. However, as illustrated in the practical examples by Gersick et al. (1997), there are the other sides of the coin in each of the theories and perspectives listed above that can put FFs at a disadvantage compared to non-FFs. Schulze, Lubatkin, and Dino (2003) argue that altruism can turn into a problem and actually increase agency costs due to family owners’ difficulty to disincentivise and prevent possible free riding and other family-biased problems. While Karra et al. (2006) found that altruistic behaviour can reduce agency costs in FFs, they also found that altruism becomes more unbalanced and risks of moral hazards increase as the FF grows and matures and, therefore, might increase agency costs. Stewardship orientation and overall long-term orientation can foster stable growth, patient capital, and resource commitment for the business, but it can also inhibit the process due to management entrenchment and conflicts with successive generations (Miller & Le Breton-Miller, 2006; Sirmon & Hitt, 2003). The resources and capabilities associated with familiness can also hamper FFs and their businesses. For instance, family members might not be sufficiently qualified for management positions but hold the same as a result of nepotism, which leads to incompetent and irrational decision-making (Sirmon & Hitt, 2003).

1.2.2 The ‘New’ School of Family Firm Theories and Perspectives The latest and most trending theoretical perspective to arise in FF research is socioemotional wealth (SEW) perspective, which focuses on the disadvantages FFs might possess in terms of business. SEW refers

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to the noneconomic and affective goals and attachments—such as emotional connection to the business, identification with family values, and family control over generations—that the family owners want to achieve and preserve in their FFs (Gómez-Mejía, Cruz, Berrone, & De Castro, 2011; Gómez-Mejía et al., 2007). Gómez-Mejía et al. (2011, p. 692) argued that ‘factors like emotional attachment, sibling involvement, sense of legacy, family control, and concern for reputation, among many others, give FFs their distinctiveness,’ due to which they ‘believe that socioemotional wealth is the defining feature of a family business […] central, enduring, and unique to the dominant family owner, influencing everything the firm does.’ SEW has been broadly considered central to the decision-making strategies of FFs (Berrone et al., 2012; Chrisman & Patel, 2012; Gómez-Mejía et al., 2007; Nason et al., 2018). SEW preservation tendencies might, however, be detrimental to the business. For instance, family owners and managers might make contractual arrangements that protect family wealth but at the expense of firm performance (Cruz, Gómez-Mejía, & Becerra, 2010) and be reluctant to merge with cooperatives or diversify due to the fear of losing power and independence (Gómez-Mejía et al., 2007; GómezMejía, Makri, & Kintana, 2010). While non-FFs primarily frame their decision-making according to economic goals, FFs also or even primarily refer to the noneconomic (SEW-related) goals in their decision-making that stem from family heritage, ownership, and involvement (Berrone et al., 2012; Chrisman & Patel, 2012). The so-called mixed gamble between economic and noneconomic goals affects strategic decision-making processes (Gómez-Mejía et al., 2014; Kotlar et al., 2018), also in the context of internationalisation (Alessandri, Cerrato, & Eddleston, 2018). A few efforts to conceptualise and bring SEW to a measurement tool have been made (Berrone et al., 2012; Debicki, Kellermanns, Chrisman, Pearson, & Spencer, 2016), from which the so-called FIBER-scale proposed by Berrone et al. (2012) has been the most widely used. Berrone et al. (2012) identify and propose five central dimensions of SEW: family control and influence, family members’ identification with the firm, binding social ties, emotional attachment, and renewal of family bonds to the firm through dynastic succession.

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First, by maintaining control and influence over the decision-making, family members can pull the strings that satisfy economic and noneconomic needs (Gómez-Mejía et al., 2007). Second, as the family and the business are intertwined closely through family name and other linkages, family members feel a unique identification with the firm. External stakeholders such as customers and suppliers can also consider themselves part of the ‘extended family’. Strong identification might make FFs careful about their reputation, especially regionally, and invest in corporate social responsibility (Berrone, Cruz, GomezMejia, & Larraza-Kintana, 2010). Third, SEW preservation creates social relationships, reciprocal bonds within family but also nonfamily members to induce a sense of belonging and commitment to the firm (Miller & Le Breton-Miller, 2005; Miller, Lee, Chang, & Le BretonMiller, 2009). The reciprocal bonds might make FFs benefit those in the close network, even without clear profitability for the firm (Berrone et al., 2010). The binding social ties can also extend internationally and to foreign stakeholders, especially with other FFs, and create community-level social capital (Lester & Cannella, 2006). Fourth, the close link between the family and the business leads to emotional attachment to the business as well as to the decision-making process, which can turn into a danger and result in biased irrational decisions over economically rational decisions (Berrone et al., 2010; Eddleston & Kellermanns, 2007). Fifth, the aim of dynastic succession is to renew and maintain family control and influence over generations and regard FF as a longterm investment in the hands of the family (Berrone et al., 2010). Bifurcation bias is another trending and lately developed concept that also addresses the dichotomy of economic and noneconomic goal orientations within FFs (Kano & Verbeke, 2018; Verbeke & Kano, 2012). So far, it has been primarily used in research on firm internationalisation (e.g. Majocchi, D’Angelo, Forlani, & Buck, 2018) and human resource practices (e.g. Madison, Daspit, Turner, & Kellermanns, 2018). Bifurcation bias, building on the transaction cost theory (Williamson, 1981), is defined as ‘a unique, affect-based barrier to short and medium run efficient decision-making in FFs, which manifests itself in two simultaneous, diverging patterns of behaviour towards family versus nonfamily assets, applied systematically and by default’

1  Introduction to the Book, Family Firms, and Internationalisation     11

(Kano & Verbeke, 2018, p. 163). A bifurcation-biased FF might prioritise family or heritage assets (such as family members) over nonfamily assets (such as professional nonfamily employees) even if the contribution of the former to the value creation activities is lower than it would be with the latter. Therefore, the arguments around bifurcation bias align with SEW, but the difference is that bifurcation bias distinguishes between functional and dysfunctional noneconomic goal orientations. The former refers to economically complementary (such as survival-, profitability- and growth-seeking) assets, whereas the latter refers to bifurcation-biased assets that at least partly substitute for economically functional behaviour (such as nepotism and asymmetric altruism). According to Kano and Verbeke (2018), the economising practices should substitute for bifurcation bias in the long term. For instance, in the context of internationalisation, in the short term, FF internationalisation might be restrained by bifurcation bias but the actions such as the appointment of nonfamily managers based on their cross-border operational meritocracy, providing international education to family members and making internationalisation-related decision-making and more rigorous performance-measurement processes should enhance internationalisation performance. ‘Ability and willingness ’ perspective is the third noteworthy theoretical perspective adopted in recent years as a framework for various FF studies. The perspective combines two antecedents that are required for FFs to achieve FF-specific goals in strategic decision-making: (i) ability, referring to family owners’ capability and discretion to utilise the firm’s resources distinctively; and (ii) willingness, referring to family owners’ disposition and commitment to act in a particularistic way in line with FF-specific goals and motivations (Chrisman, Chua, De Massis, Frattini, & Wright, 2015; De Massis, Kotlar, Chua, & Chrisman, 2014). In other words, the ability and power of family owners for strategic decision-making (Anderson & Reeb, 2003) is affected by their willingness to use their ability and power in conjunction with economic and noneconomic goal orientations (Gómez-Mejía et al., 2010). The interactions and trade-offs between ability and willingness might not only result in different strategic actions between FFs and non-FFs but also within FFs, for instance, in relation to internationalisation propensity

12     T. Leppäaho and J. Metsola

between old and new generations (Fang, Kotlar, Memili, Chrisman, & De Massis, 2018). The aforementioned arguments and dimensions indicate how SEW perspective, bifurcation bias, and the ability and willingness perspective draw upon and integrate insights from the more traditional agency theory, stewardship theory, and the resource-based view. A common denominator is that these new perspectives and concepts anchor their arguments and notions to the mixed gamble of economic and noneconomic goal orientations. Moreover, they point to the FF heterogeneity and its impact on various strategic decision-making within FFs and also to the intra- and extra-family relational aspects that play an influential role in how the businesses of FFs unfold.

1.2.3 Heterogeneity Among Family Firms: Family-Controlled Versus Family-Influenced Firms The FF-specific theories, perspectives, and concepts indicate how FFs not only differ from non-FFs but from each other (Arregle et al., 2012). The lack of distinguishing between different types of FFs and how they behave differently has been one of the reasons for the mixed results in the field (Westhead & Howorth, 2007), including FF internationalisation (Arregle, Duran, Hitt, & Van Essen, 2017). Indeed, FF heterogeneity has received increasing attention in the last decade in FF research (Chua, Chrisman, Steier, & Rau, 2012; De Massis et al., 2018). This is why we also consider FF heterogeneity in this book by distinguishing between family-controlled and family-influenced firms (Arregle et al., 2012; Sirmon et al., 2008; Westhead & Howorth, 2007). Family-controlled firms refer to firms with majority ownership (at least 50% share ownership) and presence in management and board positions, while family-influenced firms involve family members in various positions but without unilateral control of the firm (Chua, Chrisman, & Sharma, 1999; Sirmon et al., 2008; Westhead & Howorth, 2007). Family members in family-controlled firms have more strategic decision-making power through their dominant presence in ownership and management, whereas family members in family-influenced firms

1  Introduction to the Book, Family Firms, and Internationalisation     13

are more led by ‘external’, such as nonfamily managers’ and owners’, opinions (Arregle et al., 2012; Sirmon et al., 2008). As this study essentially focuses on international networking, internationalisation, and SEW among others, choosing family-controlled firms as the case firms is relevant. The decision for going international and managing international operations are often risky and costly processes in the firm, requiring planning, risk estimation, and other strategic activities. As the level of family control and involvement increase in an FF, so does the family members’ participation in strategic decision-making, which increases the mixed gamble between economic and noneconomic (SEW) goal orientations (Berrone et al., 2012; GómezMejía et al., 2007; Kotlar et al., 2018). Gallo, Tàpies, and Cappuyns (2004) proposed three internal FF characteristics that are central factors influencing internationalisation strategies and practices—strong desire to maintain control and influence, specific approach to risk, and specific governance structure—which also encouraged the selection of highly family-controlled case firms in the empirical section of this book.

1.3 Firm Internationalisation: Theories and Perspectives Similar to FF research, the research on internationalisation and international business (IB) has evolved into having a few primary theories and perspectives that aim to explain the distinctiveness and multifaceted nature of the phenomena. These theories and perspectives focus either on one or a few of the following aspects: economy, capability, process, and network (e.g. Coviello & McAuley, 1999). The most traditional is the economic aspect, from which the internalisation theory has been derived (Buckley & Casson, 1976), transaction cost theory (Hennart, 1982), and the eclectic paradigm (Dunning, 1980) for understanding IB. To summarise, these theories argue that firms engage in international activities and foreign direct investments (FDI) of varying resource commitments based on the utilisation of ownership, location, and internalisation advantages.

14     T. Leppäaho and J. Metsola

The capability aspect has been brought into the research on internationalisation and IB through resource-based view (RBV) (Barney, 1991) and the dynamic capabilities perspective (Teece, Pisano, & Shuen, 1997), which can be also used in FF research itself. In internationalisation and IB, firms can create unique and superior resources and capabilities that are more or less hard to be imitated by competitors globally. These can include factors such as the size and financial resources of the firm, technological know-how, broad product portfolio, and managerial competence which facilitate global expansion (Graves & Thomas, 2004; Olivares-Mesa & Cabrera-Suarez, 2006). Therefore, the capability aspect links to the economic aspect in that the ability and power of the firm to engage in cross-border transactions is predominantly contingent upon its resources and capabilities. While we also consider the two aspects in this book and analyse the internationalisation and international networking of FFs, e.g. by discussing the foreign operation modes and success factors when entering foreign markets and building foreign network ties, the primary theoretical focus is on the last two aspects: process and network. Process is the essence of internationalisation. For instance, two of the most applied definitions of internationalisation are as follows: ‘the process of increasing involvement in international operations ’ (Welch & Luostarinen, 1988, p. 36) or ‘the process by which firms both increase their awareness of the direct and indirect influence of international transactions on their future, and establish and conduct transactions with other countries ’ (Beamish, 1990, p. 77). While the theories and perspectives drawing upon economic and capability aspects have been relatively stable over decades, the process theories and perspectives have witnessed constant iterations and developments. The early ones, namely product life cycle model (Vernon, 1966) and innovation-related internationalisation models (Bilkey & Tesar, 1977; Cavusgil, 1980; Czinkota, 1982; Reid, 1981) were superseded by the Uppsala internationalisation process model (Johanson & Vahlne, 1977; Johanson & Wiedersheim-Paul, 1975), which itself has witnessed several new iterations (e.g. Johanson & Vahlne, 1990, 2009; Vahlne & Johanson, 2013, 2017). The Uppsala internationalisation process model builds on the notions of knowledge and commitment. According to the model, firms gradually increase

1  Introduction to the Book, Family Firms, and Internationalisation     15

their international involvement from irregular exports to overseas production and from psychically close markets to psychically more distant markets at the pace of accumulating experiential knowledge that encourages more extensive foreign market commitment over time (Johanson & Vahlne, 1977, 1990; Johanson & Wiedersheim-Paul, 1975). In the modern business environment, the sequential and deterministic presentation of the internationalisation has received criticism (e.g. Håkanson & Kappen, 2017; Van de Ven, 1992). To better understand the internationalisation processes of exchange- and network-oriented multinational firms, relational and entrepreneurial theories must be adopted in conjunction with process theories (Coviello, Kano, & Liesch, 2017; Madsen & Servais, 1997; Vahlne & Johanson, 2017). Johanson and Vahlne (2009) themselves emphasised the integration of process and network perspectives in their business network internationalisation process model, which is an updated version of their original model from 1977 and focuses more on the role of network relationships. In the model, the earlier underlying notion of psychic distance as a guiding force of gradual internationalisation is replaced with the notion of ‘outsidership’, i.e. not being present in relevant networks, which in today’s networked world better serves as the chief obstacle when expanding to foreign markets. The setup in the model is still the same with regard to the elements of knowledge and commitment, but it now considers relationship-specific knowledge and relationship commitment in the creation of which, trust is an important factor. ‘Insidership’ in relevant networks facilitates the learning process and thereby the entry to foreign markets. Although foreign expansions and related exchanges can be carried out quickly, the required relationship, trust, and commitment building take time to mitigate the risk of failure. The latest iterations of the Uppsala model have emphasised the evolutionary and individually affected internationalisation process. Vahlne and Johanson (2017) highlighted knowledge development (learning, creating, and trust-building) and resource commitment processes (reconfiguring and coordinating operational and dynamic capabilities) as enabling modern multinational firms to operate in a changing network-based business environment and increase or decrease international

16     T. Leppäaho and J. Metsola

commitment. Coviello et al. (2017) added that individuals, with their decision-making power and relationships, are in the crucial position of adjusting and changing the timing, extent, and directions of internationalisation in modern business environment affected by digitisation. Santangelo and Meyer (2017) added that the internationalisation process is not linear but rather involves different path-continuing and path-breaking changes of the resource commitment processes. According to them, individual managers, business ecosystems and home country environments shape the internationalisation process over time. Håkanson and Kappen (2017) also pointed out that the underlying, deterministic notion of the original Uppsala model as a linear and gradual resource commitment process might not be applicable in the modern business environment. They suggest a ‘casino model’ of internationalisation according to which firms conduct ‘waves’ of foreign market entries via different entry modes (such as via agents, joint ventures, or wholly owned subsidiaries) simultaneously. It involves ‘placing more bets’, which ‘leads to a higher probability of a win’ (Håkanson & Kappen, 2017, p. 1106), provided that the necessary non-location-bound resources and capabilities such as managerial skills are in place. Accordingly, the latest iterations of the Uppsala model have integrated network but also capability aspects into the understanding of internationalisation process. Moreover, through evolutionary focus, they have included the processual and temporal aspects required for understanding the changes in the internationalisation processes over time. For instance, Vahlne and Johanson (2017) state that firms are ‘continually in a state of becoming’ (cited from Langley, Smallman, Tsoukas, & Van de Ven, 2013, p. 5) with the (re)construction of the past, the present, and the future (cited from Kaplan & Orlikowski, 2013). FFs, due to often having a long history and multiple generations operating the firm, might have very different approaches to internationalisation in different time periods. However, it is noteworthy that the aforementioned internationalisation and IB theories have been generally more applicable to big multinationals than small- and medium-sized enterprises (SMEs). As the empirical section of our book involves only small FFs, we next present the literature on the internationalisation of SMEs in more detail, after which we will separately examine FF internationalisation.

1  Introduction to the Book, Family Firms, and Internationalisation     17

1.3.1 Internationalisation of SMEs: Networks in Focus In their internationalisation efforts, SMEs often rely on their foreign agents, distributors, and other partners to complement their limited resources and capabilities (Buciuni & Mola, 2014; Eberhard & Craig, 2013), facilitate foreign market entry (Agndal, Chetty, & Wilson, 2008; Chetty & Holm, 2000), and speed up internationalisation (Arenius, 2005; Yli-Renko, Autio, & Tontti, 2002). Therefore, international networking is often crucial for SMEs prior to starting foreign sales. Theorising, which acknowledges the network dependency of SMEs in internationalisation, has evolved alongside the aforementioned mainstream theories of firm internationalisation. Notable SME-focused internationalisation theories and models are the ‘international new venture’ (INV) theory (Oviatt & McDougall, 1994), the ‘born-global’ (BG) internationalisation (Knight & Cavusgil, 2004), and the integrative model of small firm internationalisation (Bell, McNaughton, Young, & Crick, 2003 ). The two terms, INVs and BGs, are used to describe these rapidly internationalising firms, which, however, have a slightly different meaning and assumptions. INVs are defined as ‘business organisations that, from inception, seek to derive significant competitive advantage from the use of resources and the sale of outputs in multiple countries’ (Oviatt & McDougall, 1994, p. 49). BGs are defined as ‘entrepreneurial start-ups that, from or near their founding, seek to derive a substantial proportion of their revenue from the sale of products in international markets’ (Knight & Cavusgil, 2004, p. 124). INVs refer to various types of firms, younger and older, smaller and larger, with an extensive range of global value chain activities and foreign entry modes, while BGs are more narrowly applied primarily to young SME-sized firms characterised by limited resources and outward internationalisation (Knight & Liesch, 2016). Thus, in this book, we use the term born-global/BG when applicable in our empirical analysis concerning small FFs and their internationalisation. The INV theory posits that firms can go international from inception, i.e. the INVs possess or have access to resources through existing knowledge and networks that speed up internationalisation (Oviatt &

18     T. Leppäaho and J. Metsola

McDougall, 1994). In addition to founder competence, resources, and capabilities (e.g. McDougall, Oviatt, & Shrader, 2003; Weerawardena, Mort, Liesch, & Knight, 2007), proactivity and risk-taking (e.g. Zhou, Wu, & Luo, 2007), high-tech and -quality products (e.g. Acedo & Jones, 2007), and other individual-, firm-, and market-level characteristics, network relationships and associated social capital are essential (e.g. Chetty & Holm, 2000; Coviello, 2006). Chetty and Holm (2000, p. 79) defined network as ‘a set of two or more connected business relationships, in which each exchange relation is between business firms that are conceptualised as collective actors’. The set of these mutually beneficial relationships determine firms’ internationalisation as they can act as bridges to market knowledge, resources, and capabilities that facilitate cross-border activities (Chetty & Holm, 2000; Coviello & McAuley, 1999). Network relationships can involve many different kinds of individuals and stakeholders, from customers and suppliers to competitors and governmental institutions; the number and portfolio of relationships available make the networks strategic environments for SMEs to cooperate (Coviello & Munro, 1995) and patch the resource limitations (Lu & Beamish, 2001). The activity level of the firm for finding and building network relationships plays a crucial role; active networking refers to the firm’s own proactivity and initiative to establish contacts, and passive networking refers to relationship building by the initiative of the other party than that of the firm itself (Johanson & Mattsson, 1988). However, it is not merely rapid and widely expanding internationalisation that SMEs can achieve with optimal internal and external conditions. There is also the possibility of incremental internationalisation process that the traditional Uppsala model describes. To integrate the traditional Uppsala-based and more recent INV-based perspective on internationalisation in the context of SMEs, Bell et al. (2003) developed an integrative model of small firm internationalisation. In their model, there are three different international pathways: incremental, BG, and born-again global (BAG). The incremental internationalisation often applies to traditional firms which aim at expanding their business by expanding overseas gradually from domestic market to psychically close markets, in which unsolicited orders from the foreign markets

1  Introduction to the Book, Family Firms, and Internationalisation     19

usually set the pace of internationalisation. BGs internationalise rapidly to many foreign markets within a couple of years from inception. These firms do not follow gradual, stepwise internationalisation to psychically close markets but instead focus on markets in which their products have market potential and in which they gain foothold rapidly to obtain firstmover advantages. Knowledge and networks are crucial in this case. The BAGs in the third international pathway focus on domestic operations for a while or have limited and sporadic international activities, but after a critical event, such as the launch of new products, firm acquisition, or succession in FFs, they internationalise intensively. These critical events provide firms with new resources, capabilities, and networks which induce more active internationalisation efforts.

1.3.2 Social Capital and Network Ties in Internationalisation To unravel the essence and motor of fruitful network relationships in internationalisation, we set to discuss the concept of social capital below. Social capital has attracted the interest of researchers in various research fields for several decades (e.g. Adler & Kwon, 2002). We use the definition by Nahapiet and Ghoshal (1998, p. 243): social capital is ‘the sum of the actual and potential resources embedded within, available through, and derived from the network of relationships possessed by an individual or social unit’. Social capital differs from other types of capital (such as financial, physical, or human capital) as it is a form of capital that is not located within a certain place, but is instead embedded in relationships between the actors in a social network (Adler & Kwon, 2002; Coleman, 1988; Nahapiet & Ghoshal, 1998). Social capital is essentially dynamic, being dependent on network development: the capital can increase or decrease as firms strengthen existing relationships, establish new ones, and end problematic ones (Jack, Dodd, & Anderson, 2008; Larson & Starr, 1993; Rauch, 2001). It should be noted that social capital might not be advantageous in every case. For instance, a close network can limit the group’s access to new information and new manner of doing things; or, social capital

20     T. Leppäaho and J. Metsola

partners might prove untrustworthy, leading to a reduced performance for the firm (Nahapiet & Ghoshal, 1998). Nevertheless, having limited social capital is usually detrimental: the less social capital a firm has, the more it is exposed to opportunistic behaviour, and the more difficult it might be to build long-term relationships (Walker, Kogut, & Shan, 1997). In social capital literature, network ties can be considered strong or weak. Strong ties are associated with relationships which have developed through interaction over time and which consequently encompass emotional intensity, intimacy, and reciprocal services (Granovetter, 1973). An individual can have only a certain number of strong ties, due to the maintenance costs associated with more intimate relationships (Singh, 2000). In contrast, the number of weak ties can be high. These weak ties do not require high maintenance but can significantly assist the entrepreneur in accessing information. Granovetter (1973) argues that weak ties act as bridges to sources of information that are not necessarily contained within an entrepreneur’s immediate (strong tie) network; consequently, because entrepreneurs interact with weak ties only occasionally, it is likely that weak ties will provide more unique information than strong ties. The two central mechanisms in social capital literature are structural hole (SH) mechanism by Burt (2000, 2010, 2019) and network closure (NC) mechanism by Coleman (1988) and Granovetter (1985). These mechanisms enable us to tackle the tension between strong and weak network ties (Burt, 2019; Gargiulo & Benassi, 2000). NC mechanism emphasises the positive effects of cohesive, strongly embedded social ties, in terms of social network benefits—a network in which everyone is connected in such a way that no one can escape the notice of others, which in operational terms usually defines a dense network (Coleman, 1988). Social norms are given ‘closure’ when two or more individuals recognise that it is advantageous for their interests to cooperate. NC facilitates access to information because another person in the network can briefly convey what is essential, and knowledge sharing becomes efficient. Furthermore, NC facilitates sanctions, and this enhances the level of trust in the network. Granovetter (1985) claims that strong ties are highly significant even in modern times, whereas Burt (2019) contends that embedded (strong) networks in any form can

1  Introduction to the Book, Family Firms, and Internationalisation     21

be a disadvantage for a firm, except during the firm’s launch when they can be an advantage. Granovetter (1985, p. 487) indeed emphasises the social nature of relationships in his research: ‘actors do not behave or decide as atoms outside a social context […] their attempts at purposive actions are instead embedded in concrete, on-going systems of social relations’. He claims that networking has changed less with modernisation than generally believed. According to the SH mechanism (Burt, 2000, 2019), the benefits result from the diversity of information and the brokerage opportunities created by the lack of connections between separate groups in social networks, i.e. non-embeddedness. Structural holes (gaps, lacunae in networks) permit a competitive advantage for an individual (or firm) whose relationships span the holes. Individuals whose networks have only a limited number of structural holes know and have control over more rewarding opportunities. Accordingly, a structural hole is considered here as defined by Burt (2005, p. 25) as ‘a place in a network that could create value. A structural hole exists between two people or groups when either party is unaware of the value available if they were to coordinate on some point’.

1.3.3 Internationalisation of Family Firms The distinctive social relationships and SEW within FFs internally make their internationalisation a unique topic to explore. FFs have an unusual devotion to continuity, tend to nurture the community of employees very carefully, and search for closer connections with customers and partners to sustain the business (Miller, Le Breton‐Miller, & Scholnick, 2008). An FF incorporates the aspirations and capabilities of the family members, and the social element it embodies affects the decisions that determine its strategy, operations, and administrative structure (Chrisman et al., 2005). They usually have an extremely high level of trust within the organisation also known as strong internal social capital (Salvato & Melin, 2008), which can reduce transaction costs, facilitate information flows, knowledge creation and accumulation, and creativity (Arregle et al., 2007). FFs are oriented towards personal relationships,

22     T. Leppäaho and J. Metsola

with a focus on interpersonal trust (Roessl, 2005). Therefore, the establishment of family-like relationships seems to be beneficial for internationalisation, but the increasing agency costs associated with the process might cause difficulties to form and acquire external partnerships and talent (Karra et al., 2006). A high percentage of family ownership seems to hinder inter-organisational networking in foreign markets (Eberhard & Craig, 2013), while the preservation of family harmony and distrust of outsiders can hamper the formation of foreign network ties (Scholes, Mustafa, & Chen, 2016). Instead of establishing new network relationships, FFs tend to strengthen and maintain long-term relationships with both existing partners and other FFs (Pukall & Calabrò, 2014). Their generally strong ties with existing foreign partners might lead to the overlooking of potential international opportunities (Kontinen & Ojala, 2012; Leppäaho & Pajunen, 2018). In this manner, the strength of network ties seems to have an influential role for FFs as strong ties enable the bridging of new network ties due to the strong bonds they tend to have (Fletcher, 2008). However, strong internal social capital does not necessarily result in faster internationalisation; in fact, it might become a liability by hindering the flow of information and blocking links to new contacts (Musteen, Francis, & Datta, 2010). Hence, family entrepreneurs typically form strong ties and lack a wide range of weak ties (Kontinen & Ojala, 2012; Leppäaho & Jack, 2016; Leppäaho, Jack, & Arenius, 2016). The desire to establish strong but few foreign network ties and the general inward-looking, risk-averse, and SEW-oriented approach to growing the family business prove that FFs internationalise slower and with narrower market focus than non-FFs (e.g. Gómez-Mejía et al., 2010; Graves & Thomas, 2004; Kontinen & Ojala, 2012; Stieg, Cesinger, Apfelthaler, Kraus, & Cheng, 2018). However, their internal social capital and FF-specific, relational attributes can also be beneficial for internationalisation. The internally strong social capital (Tasavori, Zaefarian, & Eng, 2018) can reflect on external relationships due to the ability to form enduring and trusting customer and partner relationships (Cesinger et al., 2016; Graves & Shan, 2014).

1  Introduction to the Book, Family Firms, and Internationalisation     23

Hennart et al. (2019) argued that FFs might have advantage over non-FFs with respect to social capital. They, building on a study of European SMEs, argued that a global niche business model suits FFs as it does not necessarily require heavy dependency on external resources and managerial competence to facilitate internationalisation. Instead, family-managed SMEs, i.e. SMEs in which family owners are also managers, with high-quality products might have advantage over non-FFs as they can build strong and long-term relationships with customers. Closeness to customers and cooperative attitude is important in fields of high product quality demands. Furthermore, Hennart et al. (2019) listed several advantages of family-governed and -managed SMEs possess. First, family members can maintain close, stable, and consistent relationships and dialogue with their employees, which then reflect to trusting relationships efficient decision-making with other stakeholders such as customers. Second, FFs’ tendency to transfer business and thereby knowledge and values to successive generations creates strong social capital, which helps maintain long-term relationships with stakeholders and enhance knowledge transfer. Third, family members often feel strong identification and emotional attachment to the FF and attribute a strong purpose to their FF towards something. Family-managed SMEs can leverage these unique resources to maintain high-quality products and committed relationships with customers, suppliers, and other stakeholders in global niches. International networking might be more successful if FFs form partnerships with other FFs. If the foreign partners are themselves FFs, or otherwise similar firms, it can help FFs avoid international networking failures, insofar as the cooperation exists with firms that possess similar values, mutual trust, and a long-term orientation (Fernandez & Nieto, 2005; Gallo & Pont, 1996; Mitter & Emprechtinger, 2016; Swinth & Vinton, 1993). In other words, although FFs might be less active in forming external network ties due to strong, internal bonding social capital (Graves & Thomas, 2004; Kontinen & Ojala, 2012; Roessl, 2005; Salvato & Melin, 2008), they might be able to leverage and extend this social capital to foreign partners and thereby benefit from shared interests. Lester and Cannella (2006) used the concept of community-level

24     T. Leppäaho and J. Metsola

social capital to describe how FFs seek to operate within a network of other FFs, sharing mutual trust and respect. The ‘inter-organisational familiness’ generates supportive mechanisms such as knowledge sharing which might enable FFs to deal with intra-family conflicts and thrive in the long run (Lester & Cannella, 2006). Moreover, it has been noted that family members’ active engagement in building foreign network ties and utilising international family networks is crucial for gaining new contacts, knowledge, and resources (Graves & Thomas, 2008; Hewapathirana, 2014; Mustafa & Chen, 2010). The community-level social capital attached to FFs is closely linked to the concept of relational embeddedness (or relational capital). This refers to the assets generated through mutual trust, identification, and obligations between closely interacting network partners (Bird & Zellweger, 2018; Nahapiet & Ghoshal, 1998). Relational embeddedness has been studied to foster the international growth of small firms through increased learning and a stronger knowledge base (Arenius, 2005; Han, 2006; Yli-Renko et al., 2002). Community-level social capital and relational embeddedness can be argued to become particularly relevant for FFs, which operate with both economic and noneconomic (SEW) goal orientations (e.g. Alessandri et al., 2018; De Massis et al., 2018). To secure both these goal orientations, engaging in foreign network ties in which the parties are strongly embedded with a communal sense of belonging and shared interests can be beneficial. However, this might also require FFs to be open and flexible to internal and external changes. For instance, Kraus, Mensching, Calabro, Cheng, and Filser (2016) provide various configurations with SEW as a reference point among which both the configuration of ‘low SEW endowment plus external ownership as a main external resource’ and the configuration of ‘high SEW endowment plus external ownership plus nonfamily CEO plus international networks’ lead to successful internationalisation for FFs. The complexity of capabilities, liabilities, and processes associated with FF internationalisation was confirmed in our review of 172 empirical studies on FF internationalisation (an unpublished study conducted in 2019). By focusing on the process and network perspectives, we created an FF internationalisation process model (see the adapted version in Fig. 1.2), which encapsulates (i) different internationalisation paths,

1  Introduction to the Book, Family Firms, and Internationalisation     25

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Fig. 1.2  Internationalisation of FFs

(ii) capabilities and liabilities of internationalisation, and (iii) economic and noneconomic goals driving the different internationalisation paths. We found that the internationalisation paths associated with FFs align with the taxonomy of Bell et al. (2003). In addition to incremental, BG, and BAG pathways, we added ‘unrealised or sporadic internationalisation’, because the ‘dominance’ of liabilities in FFs might often result in no or limited internationalisation efforts. The key finding here was that FFs often have many liabilities stemming from high family ownership and involvement in management in the pre-entry stage and early internationalisation, but the various capabilities related to generational, managerial and ownership changes, social and human capital, stewardship and long-term orientation, and global niche focus can facilitate and intensify internationalisation in the long term. Therefore, our summarising model aligns with the notion of the bifurcation bias (Kano & Verbeke, 2018); FFs and their internationalisation efforts might suffer from the focus on dysfunctional family or heritage assets in the short term, but the adoption of functional nonfamily and family assets should be a substitute for these dysfunctional noneconomic liabilities in the long term. As time passes, the bifurcation bias might decrease, if the FFs progress towards the upper right of the arrow, i.e. internationalisation pathways driven by capabilities and economic goals. Based on the extant research, important triggers to intensify internationalisation commitment are involvement of new generations in management and ownership (e.g. Bobillo, Rodríguez-Sanz, & TejerinaGaite, 2013; Graves & Thomas, 2008), external/nonfamily management and ownership (e.g. Calabrò, Campopiano, Basco, & Pukall, 2017;

26     T. Leppäaho and J. Metsola

Cerrato & Piva, 2012), and utilisation of external networks (e.g. Moya, 2010; Scholes et al., 2016). Through these actions, FFs can upgrade their capabilities along the internationalisation process. Minimising bifurcation bias and increasing internationalisation commitment do not mean that noneconomic (SEW) goals should be ignored and associated with liabilities only; the functional family assets, such as stewardship and long-term orientation, can be derived from noneconomic (SEW) goal orientation and integrated with the economic goals as the cohesive ‘higher-order’ values and principles for the family business. In the next chapter, we present the methodology and context of our empirical study which aims at shedding more light on the complexity of FF internationalisation from a network perspective. We use the model in the aforementioned Fig. 1.2 as a theoretical framework for the study with a focus on the international networking typology, strategies, and paths in particular (cf. the four pathways) as well as the success factors for international networking (cf. capabilities and liabilities).

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2 Methodology and Case Studies

Abstract  Chapter 1 indicated how FFs are multidimensional firm types and how their internationalisation is an outcome of various antecedents, processes, and goal orientations. Research on FF internationalisation and international networking is yet to reach a consensus. Thus, in-depth empirical investigations are required to shed light on the internationalisation of FFs from a network perspective. We have thus embarked upon an investigation of our own with a case study on 24 Finnish FFs, with the specific goal of studying how FFs build, maintain, and embrace their FF-specific features in foreign network ties. This chapter aims to open up the methodology of the study, including data selection, collection, and analysis. Furthermore, it provides brief descriptions on the case firms’ internationalisation and socioemotional wealth (SEW). The FFs included in the study are homogeneous—in a sense that they are family-controlled, small, and Finnish, from the manufacturing industry. They provide with various internationalisation pathways and SEW preservations. Keywords  Multiple-case study · Methodology · Case firm description · Internationalisation pathway · Socioemotional wealth © The Author(s) 2020 T. Leppäaho and J. Metsola, Family Firm Internationalisation, https://doi.org/10.1007/978-3-030-28520-3_2

39

40     T. Leppäaho and J. Metsola

2.1 Methodology To shed more light on the internationalisation of FFs from a network perspective, we conducted an in-depth empirical study on 24 Finnish FFs with two main research questions: How do FFs build and maintain network ties to foreign markets? How do FFs embrace their FF-specific features for successful international networking? We used a multiple-case research design inspired by Eisenhardt (1989) and by Eisenhardt and Graebner (2007). Here, the potential of case research lies in inductive reasoning (Welch, Piekkari, Plakoyiannaki, & Paavilainen-Mantymaki, 2011) and cross-case replication, combining a quest for analytical explanations (‘patterns’) with the appreciation of the semantic richness and particulars of a case (Tsoukas, 2009). The different patterns of networking in the initial stages and post-entry stages of FF internationalisation were codified via typological theorising (see Cornelissen & Durand, 2014; Fiss, 2007, 2011). In pursuing this approach, we also addressed calls for qualitative research and methodological pluralism in studying and theorising network phenomena (e.g. Coviello, 2006; Slotte-Kock & Coviello, 2010). We employed a criterion sampling approach (Fletcher, Zhao, Plakoyiannaki, & Buck, 2018) and purposefully selected cases based on the following criteria: i. Nationality/size/industry. We opted for a country whose survival is dependent on international operations and whose economy relies on FFs. Finland is a small and open economy in which internationalisation is almost a necessity, having a language (Finnish) not spoken anywhere else as well as some specific cultural features (Bell, 1995; Torkkeli, Kuivalainen, Saarenketo, & Puumalainen, 2016). The exports of Finland were mainly directed to the Soviet Union until it collapsed in the 1990s. Therefore, from the 1990s onwards, Finnish firms had to seek new export markets to survive (Singleton & Upton, 1998). Finland is a developed economy, with 75% of Finnish SMEs being family-owned (Finnish Family Firms Association, 2017), making it a particularly interesting context for study. We thus selected SME-sized firms with fewer than 250

2  Methodology and Case Studies     41

employees at the time of the interviews (OECD, 2003). The firms belonged to the manufacturing industry (typical of a family-owned industry and minimising the effect of industry in a cross-case comparison). ii. Ownership, management, and longevity, as per the definition of an FF. The firms were family-owned, with the family controlling the largest block of shares or votes, owning at least 50% of the shares and were present in both key management positions and government (see, e.g., Arregle, Naldi, Nordqvist, & Hitt, 2012; Zahra, 2003). Nearly all the case firms in this sample were 100% family-owned with at least two generations involved in running the enterprise. One firm in the sample, Mach G, used to be a 100% family-owned firm for almost 100 years but the shares were entirely sold in 2018. Thus, we still included it in the study due to long (internationalization) history as a family-controlled firm. iii. Degree of internationalisation. The firm had at least 30% of its sales from abroad (foreign sales to total sales, FSTS), either directly or indirectly and operated regularly in at least three foreign markets. This criterion was applied to ensure cases offering an in-depth internationalisation history. There were three exceptional cases, Energy A, Compo B, and Compo C, which did not have the required 30% FSTS at the time of the interviews (2015 or 2018), but we included them due to their relatively long internationalisation history (from 1980s/1990s) and the history of having bigger FSTS earlier. iv.  Intermediaries or subsidiaries as the operating mode. The firms had either their own foreign intermediaries and/or foreign partners via whom products were delivered or owned foreign subsidiaries or engaged in a combination of these two (we excluded firms with only indirect exporting). This was also because we required cases with a significant international presence and opportunity for studying ­various foreign network ties. We based our search for suitable cases in the Asiakastieto register which contains balance sheet data from approximately 4200 Finnish SMEs. We contacted 100 case firms out of which 24 volunteered to collaborate. Further information on the case firms is included in Table 2.1.

Linkage parts and rear hitches Profile structures and frames for windows Measuring equipment

Mach A

Hydraulic gen1986 erators, power washers, and compressors Machines and equipment for paper industry Machines for 1967 forestry and agriculture

Mach D

Mach C

1995

Mach B

Decor B

1983

Sliding and folding door systems Wooden design lamps

1945

1928

1975

100

100

100

100

100

100

100

90

Establishment % of year of the family company ownership

Decor A

Meter A

Wood A

Product

Firm

2 FOMs and 1 FO

1 FOM

3 FOMs

1 FOM, 1 FO and 1 NFM

1 FOM and 1 NFM

2 FOs and 3 NFMs

1 FOM and 1 FO

2 FOMs and 2 NFMs

Interviewees (family ownermanager =  FOM; family owner = FO; nonfamily manager  = NFM)

3

1

5

5

4

8

2

6

219

46

183

218

93

385

90

358

80

80

90

85

50

70

90

90

1967

2009/2010

1989–1991

2002–2003

1984

1970s

1990s

1990s

Austria, Belgium, Norway

Sweden, Germany

North America, Sweden, Germany Sweden, Norway, Great Britain Germany, England, Sweden Sweden, North America, England

Norway, Sweden, Poland

China, India, Italy

(continued)

Agents

Agents

Distributors

Agents and distributors

Subsidiaries and distributors Distributors

Agents and distributors

Subsidiary

Total Duration of % foreign Start of Most important Main number of interviews sales to internation- foreign markets foreign interviews (minutes) total sales alisation operation modes

Table 2.1  Basic information about the case firms and the interviews

42     T. Leppäaho and J. Metsola

Machinery for excavation and construction machines

Mach E

Chem A

Filling stations, tanks and related systems Medicines

Energy B

1985

2006

1966

1953

1965

Meter B

Energy A

100

1976

100

60

98

98

100

100

1956

Electronic detection and control devices Boilers

100

Establishment % of year of the family company ownership

1952

Product

Custom sawn timber products Garment A Protective gloves for firefighters Garment B Clothing items

Wood B

Firm

Table 2.1  (continued)

1 FO and 1 NFM 1 FOM and 1 NFM

2 FOMs and 2 NFMs

1 FOM and 1 FO

2 FOMs and 1 NFM 2 FOs and 1 NFM

1 FOM

3 FOMs

Interviewees (family ownermanager =  FOM; family owner = FO; nonfamily manager  = NFM)

2

2

5

2

4

3

1

5

84

97

177

105

170

94

85

253

95

5

10 (50% in some years earlier) 50

50

70

95

90

1991

2010

1980s

1982

1970s

1993

1994

1960s

Agents and subsidiary

Agents

Agents

Subsidiaries

Distributors

Agents

(continued)

Greece, Austria, Distributors Cyprus Germany, USA, Distributors and China subsidiaries

Norway, Poland, Sweden

Sweden and Estonia

Switzerland, Germany, France Norway, Switzerland, Germany China and South Korea Sweden, USA, Great Britain

Total Duration of % foreign Start of Most important Main number of interviews sales to internation- foreign markets foreign interviews (minutes) total sales alisation operation modes

2  Methodology and Case Studies     43

Cranes

Nails and 1956 reinforcements

Granite blocks

Ski waxes

Paints

Mach G

Compo B

Compo C

Chem B

Chem C

Decor C

Mach F

1978

1952

1921

1912

1978

1993

1979

Power and movement transmission products Woodworking machinery and tools Home trimming products

Compo A

100

100

60

100

60

100

100

100

Establishment % of year of the family company ownership

Product

Firm

Table 2.1  (continued)

1 FOM

1 FOM and 1 NFM 2 FOMs

1 FOM and 1 NFM

1 FOM and 1 NFM

1 FOM and 1 NFM

1 FOM

1 FO

Interviewees (family ownermanager =  FOM; family owner = FO; nonfamily manager  = NFM)

1

2

2

2

2

2

1

1

73

163

82

92

119

111

48

55

7

60

80

20

55

35

80

55

1980s

1950s

1970s

1990s

1980s

1980s

2002

1980s

Sweden, Estonia, Norway Russia, Denmark, Germany Sweden, Norway, Denmark Italy, France, China Sweden, Norway, Russia Sweden, the Netherlands, France

Estonia, Russia, Zimbabwe

Italy, Germany, Great Britain

Distributors

Agents and distributors Distributors

Distributors and subsidiaries Distributors and subsidiaries Agents and subsidiary

Agents

Agents

Total Duration of % foreign Start of Most important Main number of interviews sales to internation- foreign markets foreign interviews (minutes) total sales alisation operation modes

44     T. Leppäaho and J. Metsola

2  Methodology and Case Studies     45

2.1.1 Data Collection We studied network ties in the initial and post-entry phases of FF internationalisation by combining different sources of evidence (Denzin, 1989) including in-depth interviews and secondary materials such as webpages, annual reports, brochures, email correspondence, magazine articles, financial records, and minutes of meetings. We conducted 71 in-depth interviews with the average duration of 50 minutes per interview and at least two respondents from each firm. First, the owner-manager of each firm was interviewed. The ownermanager was then asked to recommend another/other informant(s) with extensive and detailed knowledge of the phenomenon under study. By selecting the most knowledgeable persons and interviewing two to three informants from each firm, we aimed to obtain the most relevant knowledge and counteract the biases of individual opinions (Huber & Power, 1985). Having two or more interviews from each case firm also made it possible to ask more detailed questions from the second and third interviewee. There were, however, firms in which we were unable to have at least two respondents with the usual reason being the knowledge and experience of just one person in internationalisation-related issues. The interviews were conducted by two Finnish native researchers, the authors of this book, and were aimed at eliciting participants’ experiences and perspectives on the relevant phenomena. The interviewees were first asked to describe their business in general, thereafter, their operations related to internationalisation as a whole, and subsequently, their international networking in the three most important markets. More detailed questions were asked regarding the following: (i) network ties enabling their three most important foreign market entries, (ii) changes in networks after the initial entry, (iii) qualities of and experiences with the network ties, (iv) any other issues considered significant in their international networking. The interviews provided insights into networking strategies in their foreign market entry and how they developed their network further in their post-entry. All the questions were developed according to the guidelines by Kvale (1996), with the aim of making the questions as non-leading as possible and encouraging the interviewees to give authentic answers.

46     T. Leppäaho and J. Metsola

We followed the guidelines set out by Huber and Power (1985) to improve the accuracy of retrospective reports and to minimise interview effects. All the interviews were digitally recorded and transcribed verbatim, yielding 1131 pages of transcribed text. A second listening was conducted to ensure correspondence between the recorded and the transcribed data. The complete case reports were sent back to the interviewees, and any inaccuracies they noticed were corrected. Additionally, email communication was used to collect further information and to clarify any inconsistent issues. Secondary and archival material was useful in complementing, strengthening, and even cross-examining the data obtained from the interviews. Such materials are particularly suitable for studying the archaeology of networks and embeddedness (Welch & Wilkinson, 2004). This additional data source was thus used to understand the history and the products of each firm to form detailed case histories and to understand the circumstances behind certain events, with particular reference to aspects such as foreign market entries and changes in the operation modes and partners. The secondary material was utilised to triangulate the information provided by the informants (Miles & Huberman, 1994). For instance, when the entrepreneurs described phases in their internationalisation, we compared their views with the information in their brochures, website pages, etc. Furthermore, when they described their products or management structure, we compared their descriptions with potential secondary data. In case of any inaccuracies, we contacted the informant and attempted to determine which information was correct. Sometimes, the secondary sources allowed us to complete the account, providing information the informants had been unable to recall.

2.1.2 Data Analysis The analysis of the case data comprised a three-stage process, namely data reduction, data displays, and data verification (Miles, Huberman, & Saldaña, 2014). It entailed revisiting old data to obtain new insights that would enrich the existing evidence (Dubois & Gadde, 2002).

2  Methodology and Case Studies     47

We analysed all the interviews, juxtaposed with archival and secondary data, and subsequently conducted within—and cross-case analyses. The following are the particulars: i.  In the data reduction phase, the data were coded by indexing and categorising extracts concerned with the international networking of the firm and then labelling the data in NVivo software. More than 200 theory—and data-driven categories were formed in this first labelling cycle (Miles et al., 2014). In the second labelling cycle, we revisited the data structure and sought evidence around the research question of the study. This stage generated ten overarching labels such as initiating foreign network ties, building trust, the three most important markets, forming new ties, and identification with the firm. We then wrote a detailed case history of each firm relying on the interview evidence and secondary data. ii. In the data display phase, the relevant data were collected in graphs, tables, and networks, some of which have been presented in this paper. At this stage, we also conducted a cross-case analysis, capturing similarities and differences in the international networking of our FFs. We selected pairs or groups of firms and listed the similarities and differences between each pair/group and categorised the firms according to variables of interest such as the nature of the first network ties enabling internationalisation or the level of activeness in seeking international network ties. This stage of the data analysis inspired the development of a classification scheme, i.e. a typology that clustered and compared the 24 investigated companies on the international networking typology, strategies, and paths. iii. In the conclusion/verification phase, we concentrated on finding aspects that appeared to be significant. We revisited our evidence and categorising and noted the regularities (patterns) in the international networking behaviour of the FFs and became aware of issues that affected when the FFs ended up being narrow network maximisers (NNMs) or broad network enablers (BNEs). We then revisited each case to determine whether the data confirmed the suggested relationship. After many iterations between the data and the figures and tables, we used existing literature to sharpen the insights from the inductive analysis.

48     T. Leppäaho and J. Metsola

In order to ensure the quality of the case study findings, we followed practices recommended in the literature to increase the validity and reliability of the evidence. These included the use of theory to structure the list of interview topics (Eisenhardt, 1989), circulation of interview transcripts to respondents, and between-method and between-investigator triangulation (Denzin, 1989).

2.2 Case Firm Descriptions: Internationalisation Profiles and Socioemotional Wealth Here we introduce the case firms of the study, focusing on their internationalisation history and FF-specific features. We analyse the FF-specific features among the case firms via Berrone, Cruz, and Gomez-Mejia’s (2012) dimensions of socioemotional wealth (SEW): (i) family control and influence; (ii) family members’ identification with the firm; (iii) binding social ties; (iv) emotional attachment; and (v) renewal of family bonds to the firm through dynastic succession. Figure 2.1 summarises the level of SEW collectively among the case firms: we divided the firms into three categories (low, medium, high) on the basis of the mean of each SEW dimension. As illustrated below, we identified five FFs with /RZ6(:

:RRG$ 0DFK& *DUPHQW$ 0HWHU% 'HFRU&

0HGLXP6(:

0DFK$ 'HFRU% 0DFK% :RRG% &KHP $ 0DFK' 0DFK( 0DFK* &RPSR% &RPSR& &KHP %

Fig. 2.1  SEW distribution among the case firms

+LJK6(:

&KHP & 0HWHU$ 'HFRU$ *DUPHQW% (QHUJ\$ (QHUJ\% &RPSR$ 0DFK)

2  Methodology and Case Studies     49

low SEW, ten FFs with medium SEW, and eight FFs with high SEW. Subsequently, we discuss each case firm under either the low, medium, or high SEW categories.

2.2.1 Family Firms with Low SEW Wood A is a 50% family-owned manufacturer of wooden profile structures and frames for windows. It was 100% family-owned earlier for almost 90 years but in 2017, a Danish customer bought half of the shares. The family CEO states that the motivation to sell was based on the long-term competitiveness of the firm. Wood A was established in 1928 but internationalised via agents in 1990s to Norway, Germany, and Sweden as the initial foreign markets. Currently, it focuses on Northern Europe through direct exports, especially Norway, and has a­ pproximately 90% FSTS. The firm is run by a fourth-generation family member as CEO who is the only family member in the firm besides his sister who has a minor role as a board member. The father of the current CEO died accidentally in 2000, half a year after the current CEO joined the firm, and suddenly, the current CEO decided that he will join the firm as owner-CEO and continues the FF. A customer in Norway backed up a big loan for Wood A in 2003 for a big production investment, and since then, the firm’s turnover has increased ten times to this date. Some foreign customers, such as the Norwegian one, stem from the contacts initiated by the CEO’s father, but the current CEO has himself been active in googling and visiting potential foreign customers. The less active family member of the Wood A sitting in the board says that she is quite emotionally attached to the FF as it has a long history. The family CEO, however, approaches the issue a bit differently by stating that he is not that emotionally attached and makes a clear distinction between work and free time because there has always been entrepreneurship in the family. The opinions also differ in terms of generational continuity as the family member in the board would appreciate if the firm remained in the hands of the family in the future, but the family CEO states that the same is not important to him. Pursuing the family’s benefit at the expense of the firm’s benefit does not occur, and the firm has

50     T. Leppäaho and J. Metsola

brought a couple of nonfamily members in the board with the nonfamily Chairman of the Board from the new Danish co-owner. The family CEO, however, states that he wants to maintain control for agile decisionmaking. The brother (family CEO) and the sister (board member) cooperate well and support each other. The relationships with nonfamily employees are good, and many of them have worked for the family for very long time, even from as early as the birth of the family CEO. Mach C is a manufacturer of machines and equipment for paper industry. The firm was established in 2006 as a merger of two ­different firms but has its roots in 1990s. The firm is currently owned by two families; the CEO and co-owner became a shareholder in 2009 whose daughters also have shares and the second and biggest owner, the Chairman of the Board, joined in 2010 whose sons have some shares as well. Before the entries of the current owners, the internationalisation of the firm was not strategic and was irregular. However, the new owners, with their expertise from the paper industry, started focusing more on accelerating the same around 2009 and 2010 by building an agent network in the foreign markets. The first foreign market was Spain, which was achieved rather reactively as the firm was contacted and approached from there. Generally, the firm does not engage in active promotion towards foreign markets, and the agents have the main responsibility to build the markets. Currently, the primary markets are Sweden and Germany, but the firm also exports to essentially all the other continents. The main foreign operation mode is direct exporting via agents, but the firm also has indirect exporting via other firms as subcontractors. Overall, the exports account for 70–90% of the total sales. In Mach C, the CEO has 100% commitment due to the ­responsibility associated with their role. Although generational succession has some value, the firm seeks to be sold to a bigger player. Family members are not privileged in the firm. Family management and ownership are important due to the competencies the people possess not due to the ‘familiness’. There is risk aversion; uncontrollable risky decisions are not made. Garment A was established in 1956 and manufactured d ­ifferent kinds of gloves for several decades until the 1990s when the firm started focusing on protective gloves. Moreover, in that decade the responsibility over the firm moved from father to son who has basically

2  Methodology and Case Studies     51

been the only one in the family participating in the operations of the business. In 2014, he bought the shares of his sister to obtain 100% ownership of the firm for himself. The internationalisation of the firm already started in the first generation with skiing gloves exported primarily to Europe and the USA and used by professional skiers even in seven different Olympics. With firefighter gloves, the internationalisation started in Sweden whose Rescue Board and international training sessions have been crucial in attracting more foreign customers and expanding the international network for the firm. The chief markets have remained in Europe, but the scope has extended, albeit marginally, to Asia, South America, and Africa. Currently, the firm has approximately 50 regular foreign customers in Europe, and over 90% of its turnover comes from foreign markets. The products are directly exported via dealers, but direct deliveries without intermediaries in the host markets are also executed. In Garment A, generational change is not an end in itself. The business transferred from the founder father (who was very authoritarian) to the son (the interviewed CEO) as if it was forced (father was ageing, the recession in 90 s was fierce, and the son was a guarantee of debts). Therefore, the CEO does not want to pass on the business to the next generation the same way and with duty. The emotional attachment that used to exist earlier has diminished (e.g. the challenges in the industry, and outsourcing many activities other than core activities). However, as the FF is a kind of embodiment of the individuals involved, the pride and honour to some extent has pushed the entrepreneur to win through severe financial difficulties to this date. The relationships with nonfamily employees are generally long-term, but with family members they are rather difficult. The CEO has been the chief person running the business (strong identification, 100% ownership), but family members are rather reluctant to participate, and conflicts occur (during good times there is some money to share, but during bad times family money has had to be used which is stressful). Meter B, a manufacturer of electrical detection and control devices, was established in 1965. The internationalisation of the firm started soon after the establishment with Sweden as the first destination in the late 1960s. Subsequently, many other European countries were reached

52     T. Leppäaho and J. Metsola

through attending trade fairs and utilising word-of-mouth. Currently, the firm has approximately 30 foreign markets all around the world it has exported to of which ten markets yield deals on a regular basis. The firm operates via foreign agents in these markets, but occasionally, deliveries are carried out by the firm itself. Foreign sales account for approximately 50% of the total sales, and Europe continues to be the primary market. The generational change in the firm occurred at the turn of 1990s, when the sons of the father took over the responsibility. The youngest of the three sons was mainly in charge of the firm, working as a CEO for almost 20 years until 2014 when a nonfamily person was appointed to the CEO position. The firm is entirely owned by the family. In Meter B, FF is a burden left and forced by the founder father so there is no strong emotional attachment, identification, and commitment. Generational change is not significant at all, and the Chairman of the Board hopes that no more than one of his children—preferably no one—would continue as managing the firm with his two brothers and father eventually ruined their relationships; he does not want the same for his children. The father’s strong position and veto-right inhibited decision-making, and cooperation with the oldest brother did not work such that the relationship grew cold. The father was in conflict with the benefit of the firm as a whole. The Chairman of the Board believes that the firm would have operated more efficiently if there had not been any relatives involved but rather a clear distinction between owners and employees. There should have been more external involvement in the government, because decisions made in a small FF within family ­members were not sufficiently professional. Currently, they have had a nonfamily CEO for a few years. Decor C is a 100% family-owned manufacturer of home trimming products, established in 1978 and run by first—and second-generation family owners. Internationalisation started in the late 1980s and early 1990s to Sweden, Estonia, and Russia. The primary foreign markets have remained around the Nordic and Baltic area, and the FSTS of the firm is about 35%. The exports have usually gone through dealers, but over the years, the firm has established subsidiaries to strengthen its presence in Sweden, Norway, Latvia, and Russia. Trade fairs have been

2  Methodology and Case Studies     53

important for gaining foothold in foreign markets. The active networking by the founder of the firm, e.g. establishing a European association of its industry, has been fruitful for increasing the firm’s international presence and finding customers and suppliers. FF is first and foremost considered an entrepreneurial venture and not an emotional or family-identifying business. The current family CEO believes that working with his father and the founder of the firm, currently in the board, has been difficult over the years. The current CEO has brought external board members, one of them being the Chairman of the Board, to the firm to allow an outside perspective on the issues. Generational continuity is not considered necessary in this case, and the most important goal is to maintain healthy business and convey the entrepreneurial mindset to the next generations, wherever that mindset is realised. Family control is, however, considered important for aligning operational and governmental interests for the firm’s benefit. A nonfamily CEO of a Finnish subsidiary of Decor C says that the relationship with the family owners and managers is good and the subsidiary can flexibly do what they want and obtain the necessary support from the family. The subsidiary has been able to utilise Decor A’s channels when internationalising and the international experience and education of the family CEO has been helpful.

2.2.2 Family Firms with Medium SEW Mach A was established in 1975 and is a 90% family-owned manufacturer of linkage parts and rear hitches for various vehicles. The firm has first—and second-generation family members in ownership and managerial roles, while the CEO position is held by a nonfamily person. The internationalisation of the firm started in the 1990s with focus on imports, first from Sweden in the early 1990s followed by Italy, India, and China at the turn of the twenty-first century. The Finnish government-owned export promotion organisation helped the firm internationalise to these countries. The firm established a production subsidiary in China in 2007, which has been crucial for the competitiveness of the firm. Mach A found a manager for the subsidiary from

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one of its suppliers, and this manager has worked for the firm since then. She has been vital to the firm through her contacts and knowledge of the local culture and potential customers. Most products of Mach A are sold to a big manufacturer of vehicles and, thereby, Mach A reaches many foreign markets via the networks and channels of this manufacturer. Going international was initially encouraged by this manufacturer for cost-efficiency. FSTS is currently about 70–80%. Furthermore, in addition to the sales through the big manufacturer, Mach A has started being more active in conducting direct sales especially from the Chinese subsidiary to China. During the past few years, the firm has also initiated small-scale exports to various European countries. In Mach A, the family members are very committed to be a part of the FF and feel identification with it. However, they are not too eager to make it known that their firm is an FF. Moreover, they admit that the family-centred thinking and risk avoidance might inhibit the necessary investments and that sometimes the decision-making is not rational. Family control is considered important to make decisions, but the family members acknowledge that an outside perspective is often required; e.g. they have a nonfamily CEO and nonfamily Chairman of the Board. They believe that they value taking care of the people within the firm and the partner network which stems from the FF mindset. Many nonfamily employees are friends or in some other way familiar with the family members, but every employee is treated equally in the firm. Continuing the FF over generations is not considered necessary; the most important goal is that the business itself moves forward and the successive generations can decide what path to follow. Decor B was established in 1995 and is a 100% family-owned manufacturer of wooden lamps. The firm first manufactured furniture, but in 2002, it sold the furniture business and started focusing solely on lamps. Decor B had not managed to succeed in exporting furniture, but with lamps internationalisation took off relatively quickly with first the foreign markets, Sweden and Germany, reached around 2002 and 2003. Since then, the firm has grown into a truly global firm and has exported to nearly 70 countries till date. Nowadays, Decor B has approximately 40 countries it exports to regularly and foreign sales account for approximately 85% of the turnover. The firm has only one foreign subsidiary

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of its own in the US, and mostly utilises agents and importing distributors in identifying and reaching retailers who then sell the lamps to consumers. In addition to business-to-consumer (B2C) business, the firm also executes project-type deliveries for business-to-business (B2B) clients. In showcasing and promoting its lamps, the firm puts emphasis on attending trade fairs and through those, contacting potential partners from new markets. Despite handing the CEO position over to a nonfamily worker in the firm in 2014, the founder and the current Creative Director of the firm continues to be actively involved in the business. Moreover, her son (a part-owner) and husband participate in the operations and development of the firm. In Decor B, there is very strong emotional attachment and identification with the FF; it is believed that as you have created the business, it is like your child and you should have very strong commitment to it (the founder wants to be part of the business as long as she is healthy enough). Moreover, the founder’s son has been involved in the business from early on and has thus grown into it. However, although generational change would be appreciated and significant, more significance is that the business should continue in good hands in the future whether they are from the family or outside (e.g. currently Decor B has a good nonfamily CEO running the business). Therefore, succession is not forced, and successive generations are allowed to follow their own goals. However, although the founder’s son has his own business ideas, he has shown appreciation for what the parents have accomplished and helps in the firm whenever required. There are good and close relationships within family and nonfamily members. There are no conflicts as such between pursuing family benefits over firm benefits. Although the founder has not been in the CEO’s position for a while, she has been in charge of strategic decisions as she has had clear vision about the firm. These tasks will gradually be taken over by the nonfamily CEO who is now becoming familiar with the commercial issues. The nonfamily CEO states that it is great that the family members, who own the firm, are also actively involved in the daily business but admits that (not directly regarding this firm) it might sometimes be difficult to make your own decisions as the family is so heavily involved.

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Mach B, a 100% family-owned manufacturer of hydraulic machinery, was established in 1986. The internationalisation of the firm began at the turn of 1990s to Sweden, and Middle Europe was reached around 1992 and 1993. As the firm was a pioneer in manufacturing their hydraulic products, initially it relied on and continues to believe in active door-to-door contacting abroad in persuading potential customers to buy their products. Nowadays the firm exports to over 70 countries and foreign sales account for over 90% of the turnover. Mach B trusts in a distinctive, direct multichannel exporting, in which they utilise multiple dealers in a given country or region with no exclusive distribution agreement given to one single dealer. The firm’s own main role in international markets is to support its dealer network by attending important trade fairs regularly and promoting the firm’s products with active communication. With regard to foreign sales offices, Mach B has one in China established in 2006 and one in Russia established in 2013. The firm also established a sales office in North America at the end of the 1990s, but it was closed after some time. The CEO of the firm, to this date, has been the founder of the firm and his two children currently work there as well. In Mach B, there is relatively low ‘proclamation’ of the firm as an FF. Although the CEO has been committed to the business completely owned by the family, the firm is first and foremost a limited firm as a legal entity in which ownership is separated from the family. The firm’s benefit is the priority. If there is excessive emotional attachment, there will be family fights. It is, however, beneficial if there is united power from the family to conduct the business. Generational change is appreciated but, ultimately, the interests of the firm matter. However, the CEO believes that family ownership is best for the firm in the long run. Relationships between family and nonfamily members are good; family members are not privileged in the firm and are humble employees among others, and the CEO states that he seeks to be the best employee among other employees. The CEO’s daughter, the company’s Executive Vice President, has slightly diverging views. She feels quite a strong emotional attachment and identification with the firm; she has grown into this and has assumed more and more responsibilities over time. There is perhaps a different passion to work and move forward as the

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firm is an FF. However, the FF status is not emphasised significantly although the family is proud of that the same. More important than being very family-centred is that the firm employs many worthy people with whom the firm can develop. Wood B is a 100% family-owned manufacturer of wood products established in 1952 and is currently run by third—and fourth-generation family owners and managers. The firm started internationalising in the 1960s and 1970s to England, Holland, and Germany. Currently, the FSTS is 80% with the main foreign markets being in the Middle Europe and approximately 25 foreign markets overall. The annual agent days organised by the Finnish Sawmills Association and foreign meetings via governmental export promotion programmes have yielded profitable contacts of new foreign partners and customers. The firm primarily operates via agents and distributors in the foreign market but has gradually also conducted more direct sales. The active footwork of the third-generation family owner, current Chairman of the Board and previous CEO, has been crucial for acquiring new customer opportunities and many relationships have lasted because of this. For instance, he has visited a customer in Switzerland for about 50 times. A critical turning point in the internationalisation history happened at the turn of 1990s, when Finland faced severe recession which caused dramatic decrease in the domestic-focused sales of Wood B happened. The family CEO then shut down the sawmill and travelled to Germany with his family to find new customers. Before the recession, the FSTS was approximately 30%, and a crucial find in Germany was a Finnish individual who started as a representative of Wood B. This individual has contributed to a ­significant proportion of Wood B’s FSTS and has worked for the firm to this date, managing Germany, Austria, and Switzerland. The 3rd generation son is now the CEO of Wood B and attempts to continue his father’s active communication in a modern way, using digital channels and social media to reach potential customers, for instance, in China. The emotional attachment to the firm is moderate, and their approach is more business-oriented than family-oriented. The business has often been very binding but free time has been valued. Relationships are good within the family and also with the nonfamily employees. However, nonfamily employees are not considered not so

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‘family members’ and they live their own lives in the little village where Wood B is located. Continuing the business in the hands of the family is not considered necessary as long as the business itself is healthy and employees can maintain their jobs. Many employees have worked for a long time in the firm. Family control has, however, proved beneficial as the firm has been able to go through difficulties and act as a united organisation. Mach D, established in 1967, is a 100% family-owned ­manufacturer of hydraulic cylinders, which used to focus on forestry and agriculture machinery during his history. In 2017, however, the original Mach D went bankrupt with its firm focused on those machinery, and the firm continued with its subsidiary manufacturing hydraulic cylinders. Despite the eventual bankruptcy, Mach D had achieved strong internationalisation with forestry and agriculture machinery, with 80% FSTS and over 100 export countries. Internationalisation started from inception in 1967 to Sweden, Norway, Denmark, and Middle Europe. An important help for initiating exports was a Finnish agency that created contacts to Sweden and Germany. The founder of Mach D himself attended many trade fairs with a person from that agency. Trade fairs have been important places to find foreign customers and partners, especially for the hydraulic cylinders Mach D focuses on nowadays. The exports of the firm have reached all the continents, and during the last years of Mach D as a forestry and agriculture machinery firm, Japan was a big promising market. The conversations to Japan started coincidentally when a Japanese customer noticed Mach D’s products on the website of an ATV manufacturer. The ‘old’ Mach D, however, went bankrupt mainly because of the increased competition and lower competitiveness compared to manufacturers in low-cost countries. The second-generation son of the founder, a long-time worker for Mach D, is the CEO and Chairman of the Board in the new Mach D, and the founder is a board member. The relationship of the long-time CEO and Chairman of the Board to the Mach D is contradictory. Although there is strong emotional attachment to the firm and it would be somewhat desired that the firm would continue as a FF, the firm has caused so much stress, financial setbacks and disputes with other family members. According to him, it

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makes no sense that the ownership is divided in four parts within the family members although he is the main person running the firm. He also thinks that his father, the founder of the firm, is still too much involved in the business. The founder himself thinks that he does not get enough respect from his son. Due to tensions within the family, Mach D has not been always able to rational decisions that would enable better prospects for the future. Mach D has experienced many bad financial years but there is at least one good thing in being a FF: despite difficulties, they always want to be persistent to survive and offer work for family and nonfamily members. The current focus on hydraulic ­cylinders seems to be a good direction. Mach E is a 100% family-owned manufacturer of machinery for excavation and construction industries, established in 1985. Family members of the second and third generation operate mainly in the board position, expect for one being also a Chief Financial Officer (CFO). They have a nonfamily CEO. Internationalisation started in 1991 with Germany, the USA, and France as first markets. A considerable boost for foreign sales was the counter trade opportunities with the US when Finland bought new fighters from there in 1993. The US negotiator for the counter trade eventually started working for Mach E and ran the US operations for a long time until his retirement. Mach E first focused on internationalising via dealers but then switched the focus on having subsidiaries. Until 2002, the firm had established subsidiaries in the USA, Germany, the UK, and France. However, they started focusing on the dealer network again, and nowadays, in addition to the subsidiaries and sales offices in China and Oman, Mach E has about 40 dealers around the work. FSTS is approximately 95% and there are over 30 regular export country markets in every continent, with Germany, the USA, and China being the largest. Emotional attachment to the firm is strong but emotions do not overshadow economic interests and business development is the priority. According to the nonfamily CEO, there is a good distinction between ownership and management, and he is free to conduct daily operations. Relationships between the brothers, Chairman of the Board, and the CFO are healthy. Generational continuity is somewhat appreciated, and family control is considered important for strategic decision-making.

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Mach G used to be a 60% family-owned firm with a history of being an FF for over 100 years since its establishment in 1912. However, in 2018, all the shares were sold to a foreign firm in the same industry as Mach G, that is, crane manufacturing. The firm was managed by family members for long, most recently by a fourth-generation family CEO. However, after selling the firm, the management and board now mostly involves nonfamily members. Mach G internationalised immediately after its establishment by operating as an export and import agency of various consumer goods. Exports mainly reached the Nordic countries, Russia, Germany, the UK, and France. The third-generation family owner-CEO, the father of the latest family CEO, then started focusing on manufacturing cranes in the 1970s. Exports of own cranes started in 1980s to Sweden, the UK, and Denmark. In 1989, over half of the production was exported. Recession in Finland and the collapse of the Soviet Union decreased exports significantly, but a major deal with South Korea in 1994 boosted foreign sales around the world and brought FSTS back to over 50%. The South Korean customer found Mach G from a brochure presenting innovative Finnish firms, indicating how Mach G’s networking with stakeholders turned out fruitful. Both the third and fourth-generation family members have also been active in visiting potential foreign customers and building the dealer network, e.g. by touring around Europe with a self-made exhibition truck in the twenty-first century. The third-generation father of the latest family CEO was also an active member of international association of Mach G’s industry and gained new contacts through the same. Currently, Mach G has about 35 foreign country markets with Russia, Denmark, and Germany as the biggest one and FSTS of approximately 55% overall. Under the new owner and with the help of its global sales channels, the firm believes to increase its foreign sales significantly, especially in Asia. Additionally, the dealer network, Mach G has subsidiaries in Germany, Russia, and Estonia. Successions have not been smooth always, and the latest fourthgeneration family CEO stated that his management style differs from that of his father who has a very strong personality. For a long time, the father was intensively involved in the operations after passing the baton to the son. Relationships with the nonfamily employees have been

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long-term, and they have been considered part of the family. Selling the firm to the foreign firm was not easy due to the FF’s long history and emotional attachment to and identification with it. However, the same was inevitable not only due to taxation and long-term competitiveness but also due to the desire to let the father of the latest family CEO achieve a well-earned retirement. The latest family CEO would wish to have generational continuity and the new situation requires adaptation. However, in general, the change is considered positive by the people in the firm. An external perspective in the government that has rested with the family for long and which is rational and not too risk-seeking might be beneficial for the firm. Compo B is a 100% family-owned manufacturer of nails and reinforcements for the construction industry that was established in 1956. It is currently run by second-generation brothers, one being the CEO and the other the administrative director and the Chairman of the Board. Internationalisation did not occur until the early 1990s when the firm started exporting to Sweden, Norway, and Denmark. However, the firm had been importing from the Middle Europe for a long time and had been travelling to foreign countries to get inspiration and visit competitors since the 1970s. These three nearby foreign markets have remained the biggest ones till date, and generally, the firm has focused on Scandinavia in foreign sales with the FSTS being approximately 20%. Scandinavia and especially Sweden are considered a home market for Compo B. Exports to Sweden started via a Swedish agent found in a trade fair. He worked for Compo B till about 10 years before his retirement. Since 2007, Compo B has had a subsidiary in Sweden which was previously a competitor and was subsequently bought. Emotional attachment to and identification with the firm is fairly strong due to long-term work for the business. However, it would not be difficult to sell the business if rationally required. Relationship between the brothers is good although being in the same FF is not always the easiest thing to do. Previously, generational continuity was considered important but nowadays, it is not necessary, partly because managing an FF in a small town can be tough when facing difficulties and terminating employments, which had happened some time ago. Many nonfamily employees have worked long-term in Compo B.

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A nonfamily executive in the firm states that Compo B has mainly positive but also negative aspects by being an FF; decision-making is fast but sometimes it seems too hasty. Compo C is a 60% family-owned producer of granite blocks and was established in 1921. In 2014, the firm started sales and marketing cooperation with a Norwegian FF in the same field, and simultaneously, the Norwegian firm bought 40% of Compo C’s shares. The firm has a third-generation family CEO and his two daughters also work for the firm, one in operational tasks and the other in the board. Internationalisation of the firm started in the mid-1970s to Italy and France and in the early 1980s to the Middle East. Entry into new foreign markets occurred at the same pace as the construction trends around the world. Foreign sales first occurred mainly directly with the customers’ factories, but gradually, Compo C built a partner network comprising agents and dealers in various places. The new part-owner of Compo C, the Norwegian FF, has had many of the same foreign partners as Compo C as well as others that now complement Compo C’s extensive partner network, especially in China. Furthermore, trade fairs have been important for internationalisation. Nonfamily presence in the board has proved to be significant for Compo C so that the business is not family biased. Although the firm sees value in having a like-minded and similarly value-based FF as a part-owner and board member, integrating the way of working of the two firms remains a work-in-progress. Identification with the FF for the family CEO and the rest of the family is strong as the firm has a long history spanning generations. Generational continuity is appreciated, and it seems that the fourth generation will continue the business in the future. Relationships within the family and nonfamily employees are good, the latter of which comprise those who have worked for a long time in the firm. The nonfamily export manager of the firm states that she feels that everyone in the firm are like a big family. Chem B is a 100% family-owned manufacturer of ski waxes and was established in 1952. It is currently managed by second—and thirdgeneration family members, the former being currently in the board and the latter in management and ownership. It started internationalising right after establishment to Sweden, followed by Germany. Since the

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1970s, the firm has attended trade fairs regularly for networking, especially in Germany, and many of the current foreign network ties with partner and customers date back to the trade fairs attended in Germany in the 1970s. It has also been important to attend sport events and partner with national teams to gain foothold in foreign sales. The firm operates via agents and distributors, and the FSTS is currently about 60% with the main foreign markets being Sweden, Norway, and Russia; however, the foreign sales reach almost every continent. Emotional attachment to and identification with the firm is fairly strong but not to an extent that rational and healthy business would be harmed. Emotions and business-related issues are clearly separated. Generational continuity is not necessary and requires true will from the subsequent generations. For now, family control is, however, considered important, and there are no nonfamily members in the board or ownership. Although, the family CEO admits that their board work is not always professional among the family members. Relationships between the family members and nonfamily members are good and many of the latter have worked for the firm even from the first generation. Chem C is a 100% family-owned manufacturer of paints and was established in 1978. It is managed by second-generation siblings; one is the CEO and the Chairman of the Board and the other is the Business Director. Internationalisation started in the late 1980s to Sweden and expanded in the mid-1990s to the Netherlands. A crucial step towards internationalisation was when the founder father and his Finnish partner and an expert of paints visited France, Spain, and Belgium to obtain suitable raw materials and simultaneously find partners and customers. The father lived for a while in Sweden and Belgium which also helped acquire contacts. They entered France later, and after a few disappointing partnerships, Chem C found an importer which managed the job well and has since helped the firm increase foothold in France. FSTS is still, however, approximately 10% with Sweden, the Netherlands, and France as the biggest foreign markets. Chem C has invested in their online store to boost foreign sales. Emotional attachment to and identification with the FF is fairly strong, and the nonfamily employees also feel that they are close members of the FF. There are warm relationships between the family

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and nonfamily employees. However, strong emotional attachment has sometimes led to considerable stress. Sometimes the stress has made the siblings consider selling the business. However, ultimately they have decided to continue and would actually appreciate successors from the family. Their children have worked for the firm but in minor roles and some of them left for other jobs. An external ownership of some sort would perhaps bring more competence to the firm but family control is still valued for decision-making and firm development. Chem A, a drug manufacturer, was established in 2006. The firm is majority-owned by the family with 60% ownership, but the members currently work primarily in the board and research activities, while the more operational CEO position is held by a nonfamily member who was appointed to the job in 2014. The internationalisation of the firm started around 2010 to Austria and Germany which were reached via another Finnish firm which was supposed to represent the firm in foreign markets and build the international network. However, eventually, the relationship with this partner ended, and the firm started building the network by itself. The firm operates via dealers. In Greece, the firm has a manufacturing partner responsible for opening markets outside EU with the help of its contacts. The main foreign markets are Austria, Germany, and Cyprus, but the overall the share of the exports is still approximately 5% of the total sales. However, the firm has many registration applications running in various countries such as Europe and elsewhere. In Chem A, there is strong emotional attachment, identification and commitment; the members are only the owners but are also actively involved operationally as it is a young firm with products they have developed and are their own. The family owners work for the firm for free. Generational change is important but not an end in itself; it would be desired that it would be more than merely owning and lead to more active involvement in the business. There are very good relationships within the family and nonfamily members; the goal is to commit to the nonfamily CEO, who has now been given a great responsibility as well as the freedom for running the firm operationally, as a co-owner. The family’s strategic control is considered important in this early stage. The firm’s benefit is the family’s benefit, thus there is no pursuit of family benefit at the expense of firm benefit.

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2.2.3 Family Firms with High SEW Meter A is a 100% family-owned manufacturer of measuring ­equipment that was established in 1945 and started internationalisation in the 1970s. Currently, second—and third-generation family owners operate in the board while a nonfamily CEO manages the daily business. The internationalisation of Meter A was first channelled through a large US-based corporation, but in the late 1970s, the firm started its own sales and appointed a person managing exports at the turn of the 1980s. The first export markets in the Nordic were reached through active communication established by the export manager and by attending trade fairs. A considerable boost for exports happened in 1982 when Meter A’s CEO’s old fellow student and co-worker in the large US-based corporation previously did not have a job and decided to start importing Meter A’s products to the US and Canada. The North America accounted for about half of the exports then and was run by this acquaintance for about 20 years. Due to his retirement, Meter A established its own subsidiaries in the USA and Canada in 2002 and continued exports through it. The first subsidiary was established in Sweden in 1985 and then in Germany in 1999. Managers were also acquired through existing networks and partners such as in the US case. Currently, the firm also operates via about 20 distributors, has about 60 foreign markets and 70% FSTS. Meter A has attended trade fairs actively to reach potential foreign customers and has even toured around North America and Europe with a self-made exhibition car to promote the firm’s products. The emotional attachment of the family members to the FF is fairly strong, partly because they want to contribute to the legacy and hard work initiated by the departed founder of the firm. Family members are fairly risk-averse and would not consider selling the firm outside the family. Family control is considered important as it enables agile decisionmaking as well as values human and patient capital for long-term development. Generational continuity is appreciated so that the committed and stable growth of the firm can continue, and the heritage and well-being of the employees is maintained. Family members are warm towards each other, and even the foreign partners feel that they are part

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of the Meter A family. The firm members and their partner network are considered part of an extended family. Decor A, a 100% family-owned manufacturer of sliding and folding door systems and related accessories, was established in 1983. The firm started internationalising in the next few years, heading first to Sweden in 1984 followed by the Great Britain and Norway in 1985. With the average pace of one country per two years, the firm has expanded to new foreign markets and has about 20 foreign markets today. Decor A chiefly employs direct exporting through importing distributors who can store the products and have existing sales channels to effectively distribute the products in the host market. The firm once attempted joint venture in China but it was not successful and was terminated eventually. In 2011, the founder of the firm passed the CEO position to the second generation. In Decor A, there is strong identification and emotional attachment with the firm; at least the CEO (second generation) and her father (founder and Chairman of the Board) feel this way. For instance, the CEO has grown with the business since childhood. Generational change would be important; FF has certain values and a face and is an embodiment of the people who own it. There are good relationships and cooperation between family and nonfamily members. Although family brings good values to the business, it is essential to keep family matters separate from the business so that strategic decisions are not biased. However, as the family owns the firm, their perspectives are intensively involved in the decision-making, and this reflects to riskaverse decisions as their own money and thereby the well-being of the family as well as all the employees is in question. However, since the firm is quite growth-oriented and is willing to speed up internationalisation, family benefit per se is not priority. A nonfamily employee, the export sales representative, mentions that he has been actively engaged in the business early on and believes that other employees feel the same; they feel like part of the family. Energy A is a family-owned firm operating in the field of heating boiler manufacturing. It was established in 1953, and in 1982, internationalisation started in Austria followed by Sweden, Canada, and the Soviet Union during the next years. To this date, the amount of

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international trade has fluctuated with changes in energy prices, and currently, international sales account for approximately 5–10% of the total sales; during the peak years this number reaches approximately 50%. The main foreign markets are located in Nordic and Baltic countries due to logistic reasons. The firm operates through agents and seeks partners that could complement them with construction-related expertise when delivering heating boilers to foreign markets. The firm is run by a third-generation CEO whose father continues to be actively involved in the business as the Chairman of the Board. In Energy A, there is high emotional attachment and commitment; it is not considered merely work but also a hobby with long working hours. Generational change is appreciated and expected (third-generation member is now CEO). There are good relationships and cooperation between both family and nonfamily employees; non­ family employees are considered friends and owner-managers wish to be involved in the daily business and handle the same things that the employees in the factory do. Energy B, a manufacturer of filling stations, tanks, and related systems, was established in 1966. From 1988 to 1998 the firm was owned by the father of the current CEO, and in 1998, the succession took place when the current CEO bought his father’s shares, essentially assuming full ownership of the firm with 2% of shares belonging elsewhere. The internationalisation of the firm started in the early 1980s to Soviet Union, where the firm exported products indirectly via a subsidiary of another Finnish firm, with whom they attended trade fairs to promote exporting. The firm has had a joint venture in Russia and licensing business in the Great Britain and USA but those shut down eventually. Currently, the firm operates primarily by exporting directly or via a subsidiary in Poland. Exports account for about half of the total sales, and the chief markets are Norway, Poland, and Sweden of which Norway accounts for about half of the total exports. In Norway, the firm has a big, long-time deal and partnership, which was achieved through active communication and relationship building by the current CEO. The firm adopts a ‘guerrilla strategy’ in internationalisation, referring to active screening and utilisation of potential opportunities without committing a vast amount of resources.

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The CEO of Energy B, who is the major shareholder in the approximately 98% family-owned firm, is strongly emotionally attached to the firm. Identification is strong as he lives next to the firm premises, and the firm and its employees operate like a farm, family-like community with good and rather close relationships within the members. The CEO represents the second generation, and the third generation is also involved in the management and government. Although generational change seems desirable, it is strongly determined by the will and the skills the successor possesses. However, when it comes to maintaining jobs in Finland, the CEO believes that continuing as an FF better secures these jobs. The essential owner and CEO have substantial control over and involvement in decision-making, which is both good (in terms of speed) and bad (in terms of subjective power) according to one nonfamily interviewee. Garment B, established in 1976, is a clothing manufacturer run by the second generation. The firm, wholly owned by the family, had mainly foreign imports and domestic focus before the generational change in 1991, after which internationalisation, led by the founder’s son, started more extensively with Sweden being the first foreign market in 1993. They entered the Chinese market in 1994, which has been the biggest market along with the most recent South Korean market which the firm entered in 2009. In these two markets, which basically constitute the main markets of the firm, the firm operates through subsidiaries. Customers are reached through shops and shop-in-shops as well as with online shops. In South Korea, the firm also operates by licensing. In Garment B, there is strong identification (e.g. it is a 24/7 job and carries a family name with it) and emotional attachment to the firm (strong family involvement; e.g. one of the children was to pick up Korean business guests from airport on the interview date). Also indicating emotional attachment, the CEO of the firm was unwilling to continue the FF in 1988, and his mother, the founder, sold it to another firm but in 1991, he bought the firm back. Generational change is not considered an intrinsic value and inevitable and is not forced; the successive generations must have interest in the business. The current mindset is that there would be successors from the children, but it is emphasised that it will be hard work for someone who

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continues. There are good relationships between both family and nonfamily members (long-term employees generally). The CEO admits that there are some people he has good relationships with but it is not the same with some others, as he is a very emotional individual. It is important that family has control over the business while it is still small; however, although there is quite strong emotional attachment to the firm, it is acknowledged that it must not be at the expense of healthy business, and in a small firm such as this, the family should manage by numbers and not by emotions. They need to invest their own money in the business, so they have to be rational (compared to the situation in which the firm was owned externally; then, they could loan money from the bank more easily). During the past difficult years, the CEO and his wife did not pay themselves wages; healthy business comes first, which then reflects on the family’s well-being. The nonfamily manager in South Korea states that he feels like a part of the family. He wants to ‘contribute anyway for the second generation to be inheriting, the first generation was in really good shape’. Compo A is a 100% family-owned manufacturer of power and movement transmission products and was established in 1979. It currently has the first-, second-, and third-generation family members in the business. Its internationalisation started quite soon after establishment, first to Sweden and Norway in the mid-1980s and subsequently to Germany in the late 1980s. The firm hired an interim export manager to travel to Sweden and Norway and that is how the process was initiated. In Germany, the former family CEO and current Chairman of the Board went on car trips for one to two weeks per visit many times throughout the 1990s to find new customers. Internationalisation was achieved both via direct sales and via broad agent network all around the world and was boosted by attending trade fairs regularly and using governmental and private consulting. FSTS is currently about 55% and the main foreign markets are Italy, Germany, and the UK. The Chairman of the Board admits that there have been situations when the emotional attachment to and identification with the firm has affected rational decision-making and family members have had to take a step back to re-think decisions. Relationships within family members vary from side to side. The father of the Chairman of the Board,

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who founded the firm, has a hard time stepping aside from the business. The son himself also thinks that due to 40 years of being in the firm, he feels a strong identification with the firm and will probably step aside only when turning 70. He admits that he should not participate in the daily operations but he continues to do so. Strong family control is still important for strategic decision-making, investments, and financing, despite having a nonfamily CEO managing the operations. The Chairman of the Board believes that it would be beneficial to have generational continuity after him, but the subsequent generations can decide their own course of action. Mach F is a 100% family-owned manufacturer of woodworking machinery and tools, established in 1993 and is essentially run by only one second-generation family CEO with his mother and siblings having significantly minor roles in the board. The first exports went to Russia in 2002 via a trade fair in Sweden, followed by Estonia in 2003 via a trade fair, and Australia in 2006 via email communication. Russia has accounted for most exports since then, and building of the market has been facilitated by contacts with dealers that the current CEO’s father and founder of Mach F had established via the great grandfather’s firm previously. Foreign sales to Zimbabwe also were achieved when a former student of Mach F’s founder from the 1980s contacted the firm suddenly in 2009 and wanted to buy its machinery. He became an agent for Mach F, and Zimbabwe has become the third largest foreign market for the firm after Russia and Estonia. In addition to Zimbabwe, in Russia, the firm has a few agents, but elsewhere it sells directly. Trade fairs have been important for meeting partners and potential customers, and the FSTS is approximately 80%. The second-generation family CEO feels strong emotional attachment to and identification with the firm, partly because his father and former founder-CEO of the firm died suddenly at a relatively young age few years ago, and the son was determined to continue the FF. He considered hiring a nonfamily CEO but realised that he knows the business well as a long-time bystander and summer worker. His mother and siblings, who primarily operate via the board, also consider family control worth maintaining. Generational continuity is, however, not necessary. Sometimes, the family benefit is prioritised over business benefits, e.g.

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by choosing to attend family parties but not a beneficial trade fair. The turnover of nonfamily employees has been almost zero and they have worked for the firm for a long time, subsequently retiring. Relationships between family members are also good.

References Arregle, J. L., Naldi, L., Nordqvist, M., & Hitt, M. A. (2012). Internationalization of family-controlled firms: A study of the effects of external involvement in governance. Entrepreneurship Theory and Practice, 36(6), 1115–1143. Bell, J. (1995). The internationalization of small computer software firms: A further challenge to “stage” theories. European Journal of Marketing, 29(8), 60–75. Berrone, P., Cruz, C., & Gomez-Mejia, L. R. (2012). Socioemotional wealth in family firms: Theoretical dimensions, assessment approaches, and agenda for future research. Family Business Review, 25(3), 258–279. Cornelissen, J. P., & Durand, R. (2014). Moving forward: Developing theoretical contributions in management studies. Journal of Management Studies, 51(6), 995–1022. Coviello, N. E. (2006). The network dynamics of international new ventures. Journal of International Business Studies, 37(5), 713–731. Denzin, N. K. (1989). Interpretive interactionism. Newbury Park, CA: Sage. Dubois, A., & Gadde, L. E. (2002). Systematic combining: An abductive approach to case research. Journal of Business Research, 55(7), 553–560. Eisenhardt, K. M. (1989). Building theories from case study research. Academy of Management Review, 14(4), 532–550. Eisenhardt, K. M., & Graebner, M. E. (2007). Theory building from cases: Opportunities and challenges. Academy of Management Journal, 50(1), 25–32. Finnish Family Firms Association. (2017). Family businesses in Finland [online document]. Available at http://www.europeanfamilybusinesses.eu/uploads/ Modules/Publications/finland-fam-bus.pdf. Fiss, P. C. (2007). A set-theoretic approach to organizational configurations. Academy of Management Review, 32, 1180–1198. Fiss, P. C. (2011). Building better causal theories: A fuzzy set approach to typologies in organizational research. Academy of Management Journal, 54, 393–420.

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Fletcher, M., Zhao, Y., Plakoyiannaki, E., & Buck, T. (2018). Three pathways to case selection in international business: A twenty-year review, analysis and synthesis. International Business Review, 27(4), 755–766. Huber, G. P., & Power, D. J. (1985). Retrospective reports of strategic-level managers: Guidelines for increasing their accuracy. Strategic Management Journal, 6, 171–180. Kvale, S. (1996). Interviews: An introduction to qualitative research interviewing. Thousand Oaks, CA: Sage. Miles, M. B., & Huberman, A. M. (1994). Qualitative data analysis: An expanded sourcebook. Thousand Oaks, CA: Sage. Miles, M. B., Huberman, A. M., & Saldaña, J. (2014). Qualitative data analysis: A methods sourcebook. Thousand Oaks, CA: Sage. OECD. (2003). Officially-supported export credits and small exporters. Paris, France: Organization for Economic Co-operation and Development. Singleton, F., & Upton, A. F. (1998). A short history of Finland. Cambridge: Cambridge University Press. Slotte-Kock, S., & Coviello, N. (2010). Entrepreneurship research on network processes: A review and ways forward. Entrepreneurship Theory and Practice, 34(1), 31–57. Torkkeli, L., Kuivalainen, O., Saarenketo, S., & Puumalainen, K. (2016). Network competence in Finnish SMEs: Implications for growth. Baltic Journal of Management, 11(2), 207–230. Tsoukas, H. (2009). Craving for generality and small-N studies: A Wittgensteinian approach towards the epistemology of the particular in organization and management studies. The Sage handbook of organizational research methods (pp. 285–301). London: Sage. Welch, C., Piekkari, R., Plakoyiannaki, E., & Paavilainen-Mantymaki, E. (2011). Theorising from case studies: Towards a pluralist future for international business research. Journal of International Business Studies, 42, 740–762. Welch, C., & Wilkinson, I. (2004). The political embeddedness of international business networks. International Marketing Review, 21(2), 216–231. Zahra, S. A. (2003). International expansion of U.S. manufacturing family businesses: The effect of ownership and involvement. Journal of Business Venturing, 18(4), 495–512.

3 International Networking Typology, Strategies, and Paths of Family Firms

Abstract  Our empirical study indicates that FFs can be divided into two main categories in regard to international networking strategies and paths: narrow network maximisers (NNMs) and broad network enablers (BNEs). This typology is derived from the scale, scope, and strength of foreign network ties. NNMs focus their international networking either on psychically close or distant foreign markets, while BNEs operate globally. NNMs aim to maximise the benefits from a low number of strong relationships, while BNEs aim to enable their large portfolio of various network ties to induce international growth. This section discusses the idiosyncrasies of NNMs and BNEs with plenty of interview quotes. Despite differences, there are common FF-specific success factors that we outline in the end of the chapter: utilising global niche/high-quality product strategy, minimising bifurcation bias, selecting suitable network ties, and embracing FF status and virtues in marketing and relationship building. Keywords  Narrow network maximiser · Broad network enabler · International networking strategy · International networking path Network tie © The Author(s) 2020 T. Leppäaho and J. Metsola, Family Firm Internationalisation, https://doi.org/10.1007/978-3-030-28520-3_3

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3.1 International Networking Typology of Family Firms On the basis of our analysis of 24 Finnish FFs (with both primary and secondary data), we were able to recognise two major international networking strategies among the case of FFs: we label the first category (n = 11) as narrow network maximisers (NNMs) and the second one (n = 13) as broad network enablers (BNEs) (see Table 3.1). We categorised the NNMs into subcategories of regional and global NNMs.

3.2 International Networking Strategies of Family Firms As stated above, our analysis revealed that the case FFs differentiated in their international networking strategies and characteristics with respect to how they maintained and expanded their international network. All the FFs focused on creating and developing strong ties with their international network partners—hence, the difference in their international networking strategies indeed lied in the maintenance and expansion aspects. On this basis, we created two major categories for the case FFs: (i) the NNMs (n = 11) relied on only a few strong network ties to promote their internationalisation process; whereas (ii) the broad network enablers (BNEs, n = 13) were active expanders of network ties on a more global scale with a wide range of weaker and stronger ties. The labels for these two categories derive from the terminology and dichotomy of the two main international market scope strategies: geographically or numerically narrow market concentration and geographically or numerically broad market diversification (Yeoh, 2004). The labels also derive from the social capital and relationship marketing literature. A firm can have only a limited number of strong and intimate ties due to the high maintenance costs but a high number of weak ties due to the low maintenance costs (Singh, 2000). Furthermore, since there can be relationships of varying strengths, firms might need to allocate their maintenance resources differently to more and less valuable

3  International Networking Typology, Strategies …     75 Table 3.1  Descriptions of narrow network maximisers (NNMs) and broad network enablers (BNEs)

Number of case firms Nature of products offered International scope International scale (FSTS) International networking maintenance

Number of foreign network ties Strength of foreign network ties

Narrow network maximisers (NNMs)

Broad network enablers (BNEs)

11a More low-end and bulk

13b More high-end and niche

Regional or global 46% on average Relationship commitment management; concentrate and maintain intimate contact for sensing the demands, serving readily and create commitment Low

Global 71% on average Portfolio management; allocate most resources to the strong ties but create new weak ties for global expansion and new opportunities High

From weak to strong, ‘open relationship’ (long-term, familial and trustworthy but also purely business-related with the possibility for change) Form of social capital Relational embeddedness Community-level social capital Increase of social capital Through network Through conveying within foreign network the responsibility and closures ties freedom for promoting foreign sales SEW level Usually medium Usually high for global NNMs and rather evenly divided from low to high for regional NNMs Strong ‘matrimonial’ (long-term, familial, trustworthy, and expected to last long)

aMach

A, Wood A, Energy A, Garment A, Garment B, Compo B, Chem A, Energy B, Chem C, Mach F, Decor C bMach E, Mach B, Mach G, Mach C, Decor A, Meter B, Meter A, Wood B, Mach D, Compo C, Chem B, Decor B, Compo A

relationships in the portfolio (Johnson & Selnes, 2004). Therefore, NNMs aim to maximise their maintenance efforts in a few strong foreign network ties, whereas BNEs can maintain the larger number of

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weaker and stronger ties, the former of which providing information and enabling more global networking opportunities outside the immediate network (Granovetter, 1973). We discovered that the FFs in both categories usually started their internationalisation process via a traditional incremental pathway proceeding from nearby and culturally close markets. However, some FFs (BNEs) were more active in expanding their international networks on a global scale and this seems to be significant for their financial performance as well. To ensure a more extensive view of the FFs and the two categories in addition to their overall international networking strategy, we also analysed the FFs in terms of their (i) products; (ii) international scope; (iii) international scale (FSTS); (iv) number of foreign network ties; (v) strength of foreign network ties; (vi) form of social capital; (vii) increase of social capital; and (viii) SEW level and its possible connection to international networking. In relation to the international scale, there is a significant difference in the foreign sales to total sales (FSTS) between the two categories: the average FSTS for NNMs is 46%, whereas it is 71% for BNEs on average. However, with respect to the products, NNMs offer more low-end or bulk products that might require regional or cost-effective networking strategy to capitalise on low prices or close customer intimacy, while the products offered by BNEs are relatively more high-end or niche products that inherently have more global potential. This, naturally, might also influence their international networking strategy and characteristics. With regard to the location or scope of international business operations, the NNMs operate both regionally and globally. Some NNMs operate via this strategy to internationalise (cost-) effectively in psychically close and strategically focused markets in and around Scandinavia (e.g. Compo B, Energy B, Wood A), while others aim to build strong network ties with one or a few partners in psychically distant and strategically focused markets (e.g. Mach A, Garment B, Mach F). Therefore, we created two subcategories for NNMs, based on their either regional or global focus. BNEs, on the contrary, are relatively similar to each other in terms of the international scope of the large number of

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network ties which extend beyond regional (i.e. Scandinavia, Baltic countries, Northern Europe) areas. In relation to the number of foreign network ties, BNEs have built a significantly broader set of network partners than NNMs. All the case firms, partly due to small size, have primarily used exporting strategy through agents, distributors, and other low-commitment operation modes to promote foreign sales, but NNMs have relied relatively more on higher-commitment foreign operation modes, such as wholly owned subsidiaries, to run local operations. Therefore, they might consider having a few high-commitment subsidiaries, mostly in nearby locations with less uncertainties, as a way of reducing internationalisation risk through bigger control and easier coordination (Boers, 2016; Kao, Kuo, & Chang, 2013). However, one might argue that building network closure (NC) with one or few foreign partners via a high-commitment entry mode, especially in psychically distant countries, might in fact be quite risky for FFs (Baronchelli, Bettinelli, Del Bosco, & Loane, 2016). On the other hand, BNEs consider broader network of foreign partners as leading to a higher success probability of internationalisation (cf. the ‘casino’ model of internationalisation by Håkanson and Kappen [2017]). In both cases, FFs aim at building trusting and long-term relationships with their network partners but NNMs (e.g. Energy B and Garment B) consider a NC with only a few partners or focus primarily on only one foreign partner as a beneficial way to promote sustainable internationalisation, whereas BNEs (e.g. Decor B and Mach B) are proactive in building multiple partnerships. The international networking strategy and maintenance of NNMs involves concentrating and maintaining a close contact with the foreign partner (e.g. agent, distributor, or subsidiary manager) or the major customer for sensing the emerging demands and serving requests readily. Therefore, referring to relationship marketing literature, it can be inferred that the focus of NNMs is on relationship commitment management and on the attempt to ensure that the strategically vital partnerships are truly loyal, committed, and forward-looking and not purely transactional in nature. The emphasis is on commitment, defined as ‘an exchange partner believing that an ongoing relationship with another is so important as to

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warrant maximum efforts at maintaining it’ (Morgan & Hunt, 1994, p. 23). Accordingly, NNMs maximise their limited resources to maintain the few most potential and fruitful foreign partnerships. In turn, the international networking strategy of BNEs resembles the ‘divide and conquer’ strategy in the sense that BNEs aim for many foreign partners (usually agents or distributors) in different countries and also within same countries to induce healthy competition within the partners and enable an extensive reach of foreign sales. However, the strategy is not as harsh as its original meaning but is executed with active and supporting leadership of the partner network as a whole. By referring to relationship marketing and investment literature, BNEs can be argued to view their international networking as portfolio management through which they spread the risk of internationalisation through allocation of foreign sales activities and low-commitment sales promoters in various countries while simultaneously expecting significant performance and growth from these activities and promoters. BNEs put special emphasis on the strong network ties in their portfolios to ensure the service level for high-quality and niche products, while also enabling the weaker ties to contribute to the overall sales growth and reach more globally (Johnson & Selnes, 2004). In both NNMs and BNEs, the foreign network ties are usually strong, long-term, trustworthy, and even familial, but the difference can be made on the basis of relationship analogy; the foreign network ties of NNMs can be argued to be matrimonial in the sense that the close network ties are expected to last long with strong reciprocal commitment, whereas the foreign network ties of BNEs resemble ‘open relationship’ in which the ties are close and committed but can (at least from BNE’s side) be readily discontinued if the results don’t align with BNEs’ determined and wide-reaching internationalisation strategy. To avoid ‘divorce’, NNMs aim to increase the social capital within the network ties through NC (e.g. conducting multi-year contracts for the supply of NNM’s products and services). To have a healthy open relationship, BNEs aim to increase community-level social capital (Lester & Cannella, 2006) within the broad network by conveying the responsibility and freedom for promoting foreign sales and providing support when required (e.g. arranging annual partner meetings at the

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headquarters or regularly sending salespeople and engineers to meet the partners and customers). An interesting finding between NNMs and BNEs is that the levels of SEW among NNMs range relatively evenly from high to low, whereas BNEs mostly have medium levels of SEW. Moreover, global NNMs mostly have high levels of SEW. This seems to indicate that managing broad network of foreign partners and customers requires disengagement from core family-centred and inward-looking business thinking. The greater or lesser involvement of the foreign network ties into the ‘extended family’ helps achieving primary economic goals with a noneconomic communality but at the expense of decreasing some SEWrelated dimensions. For instance, many BNEs have a nonfamily CEO with the main task of increasing international sales and networking, which indicates that while the family is still actively involved in the background conveying the FF goals, the family members do not think that they can manage all aspects to be internationally competitive. They might need outside competence to enable that competitiveness and, thereby, to secure the FF’s future that still has significance for the family members. Noneconomic goals are important but not at the expense of economic goals. High SEW has been found to decrease FFs’ willingness to go international and focus on domestic or nearby markets (Alessandri, Cerrato, & Eddleston, 2018; Gomez-Mejia, Makri, & Kintana, 2010; Yang, Li, Stanley, Kellermanns, & Li, 2018). Therefore, BNEs might believe that they need to act as firms without the family prefix as the primary reflection point for operating. However, the FF status can be leveraged to show the broad network of partners and customers that the FFs are long-term-oriented and trustworthy business partners. Being an FF can act as a cohesive force that holds the extensive network together. As a practical example, many BNEs arrange regular partner meetings where the partners meet the FFs and other partners around the world. Trade fairs are also actively attended to meet prospective partners and customers. Regarding NNMs, the usually high SEW level of global NNMs suggests that they create relational embeddedness characterised by mutual trust, identification, and obligations (Bird & Zellweger, 2018; Nahapiet & Ghoshal, 1998) in a few foreign network ties and simultaneously

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preserve SEW through binding yet ‘safe’ ties about which they have considerable knowledge. High SEW might not be a restraining factor for international networking but instead a factor that agglutinates narrow and strong network partners together between psychically distant markets such as Finland and China. Although the SEW levels among the regional NNMs vary, there are two interesting correlations: those having high SEW are resolutely focused on network ties near Finland, whereas those having low SEW have engaged in occasional foreign sales in more psychically distant markets in addition to the primary focus on the psychically close markets. One conclusion might be that the regional NNMs with high SEW are risk-averse to expand their international scope due to the fear of losing SEW, while the regional NNMs with low SEW are more prepared to seize the opportunities from more distant countries while maintaining the ‘safety net’ around close markets that provides for certain SEW dimensions in which the firms see value.

3.3 International Networking Paths of Family Firms With respect to the internationalisation paths or international networking paths of NNMs and BNEs, Fig. 3.1 illustrates the differences among the different firm types. The figure illustrates how regional NNMs, global NNMs, and BNEs internationalise differently in terms of speed, scale, and scope. As mentioned previously, the strength of the network ties also vary. In Fig. 3.1, the length of the arrows from each firm type represents the time to internationalisation (speed). The number and weight of arrows for each firm type represent the scale and scope of internationalisation. The network ties can reach either psychically close (dots in the lower triangle) or distant (dots in the upper triangle) foreign markets, the division of which is depicted with the line crossing the square. The time to the internationalisation of regional NNMs is the longest, and they usually aim to establish strong network ties to psychically close foreign markets from the beginning. Global NNMs also

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Slowly to psychically close foreign markets (long-term incremental internationalisation)

Regional NNM

Global NNM

BNE

Strong ties to a few subsidiaries, agents, and distributors (‘relationship commitment management’)

Slowly to psychically close but rapidly to distant foreign markets from there (from incremental to ‘born-again global’ internationalisation) Strong ties to a few, mainly subsidiaries in distant markets (‘relationship commitment management’) Rapidly to psychically close and distant foreign markets (‘born global’ or ‘casino internationalisation’) Globally many network ties from weak to strong with mostly agents and distributors (‘portfolio management’)

Time (to internationalisation)

Fig. 3.1  The international networking paths of regional NNMs, global NNMs, and BNEs

establish network ties to psychically close foreign markets first, but rapidly switch the focus on psychically distant markets. The network ties become stronger when becoming more global. Regional NNMs, however, usually have more network ties than global NNMs, which they can manage regionally, thus keeping them strong. While regional NNMs follow long-term incremental internationalisation, global NNMs move from incremental to ‘born-again global’ (‘BAG’) internationalisation but with relatively few network ties. Accordingly, regional NNMs, in many ways, align with the ‘traditional’ pathway of small firm internationalisation (Bell, McNaughton, Young, & Crick, 2003). Regional NNMs usually internationalise slowly and gradually in a single psychic market at a time with relatively low-tech products. Capitalising on international opportunities is rather reactive and ad-hoc, following the mindset of cost-efficiency and firm survival. Bell et al. (2003) argue that firms following traditional pathway show limited evidence of networks with regard to international expansion patterns. However, at least

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among the FFs examined in this study, regional NNMs show how few but strong network ties have facilitated the internationalisation process of the firms. FFs might have advantages over non-FFs in utilising their FF status for close and trustworthy network ties that benefit profitable, long-term internationalisation in a given market. Global NNMs align with the BAG pathway described by Bell et al. (2003) in the sense that they have had the ‘epoch’ of domestic or nearby market focus for some time and more rapid internationalisation has occurred after some critical incidents. Global NNMs also utilise their foreign partners’ existing networks and channels to enter and expand foothold in psychically distant markets. Global NNMs among our case firms differ from the Bell et al.’s (2003) suggestion in that they do not enter several markets at once but, similar to regional NNMs, focus on establishing few but strong network ties in psychically distant markets. Similar to regional NNMs, global NNMs might possess advantages in leveraging their FF status for successful long-term networking with the foreign partners and customers. We will discuss these regional and global NNMs and their network ties more in the following chapters. BNEs, in turn, have the fastest time to internationalisation but also bigger scale and scope of network ties in both psychically close and distant foreign markets. They usually also expand to psychically close markets first but, in tandem, also reach markets more globally. Their internationalisation can be considered following ‘born-global’ (‘BG’) or ‘casino’ internationalisation through which the extensive international portfolio of foreign markets and network ties are established within a relatively short time to seize the international opportunities and gain international growth fast. The international networking paths of BNEs align with Bell et al.’s (2003) BG pathway in many ways. BNEs are proactive and follow rapid expansion to many markets at once with the objective of gaining competitive and first-mover advantages for their relatively more niche products. BNEs operate via a flexible set of entry and distribution modes, mostly low-commitment (agents, distributors) but also high-commitment (subsidiary) modes and rely on an active and structured approach to utilise their global networks as a whole for concurrent and widespread international expansion.

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Accordingly, another theoretical model to be associated with the international networking paths of BNEs is the casino model of internationalisation (Håkanson & Kappen, 2017). In the casino model, internationalisation patterns are seen as ‘waves’ of international expansions to many foreign markets and entry modes simultaneously, which is enabled by managerial skills and administrative systems to effectively manage foreign activities and recognise foreign opportunities. It is more about basing the performance on the international portfolio instead of individual markets as in the traditional, incremental internationalisation process. Håkanson and Kappen (2017) consider both BG and casino internationalisation being approached through effectuation, i.e. capitalising on the emerging opportunities by the means at hand, whereas traditional incremental internationalisation is more causation-based, i.e. guided by knowledge and according to predetermined plans. The behaviour of NNMs involves more risk aversion and uncertainty avoidance, whereas BNEs recognise how their committed and competent management along with globally potential niche products can be advanced to global markets extensively. The strength of the network ties in the large international portfolio varies from weak to strong. BNEs focus their efforts on the strong and most profitable ones while maintaining the effectiveness and opportunities residing in the weak network ties. Accordingly, BNEs’ networking strategy is more about ‘portfolio management’, while NNMs invest more in ‘relationship commitment management’ with a few strong foreign network ties. In the next chapters, we discuss the international networking paths and strength of the network ties of the three firm types (regional NNM, global NNM, BNE) in more detail with examples.

3.4 Narrow Network Maximisers (NNMs) In line with the network closure (NC) theory (e.g. Coleman, 1988), NNMs see potential in building close and long-term relationships with foreign partners to increase commitment, knowledge sharing, and alignment of interests for productive cooperation and international trade between the parties. By building these cohesive network ties, NNMs

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seek to maximise the potential agency benefits and pave the way for efficient foreign sales promotion and identification of new foreign opportunities within and outside the host market of the foreign partner. However, there is the risk that FFs might miss out on potential international opportunities when they establish ties with only a small number of foreign partners (Kontinen & Ojala, 2012). As mentioned previously, NNMs operate either with regional or global focus.

3.4.1 Regional NNMs The international networking paths of regional NNMs usually follow incremental expansion to nearby markets in Finland, and the network of the main foreign markets have usually remained around the Scandinavia and Baltic area. The strategic focus on building regionally international NCs often stem from cost-efficiency needs and the nature of the products an NNM provides. These regionally international NNMs can be argued to invest in NC in geographically and culturally close foreign markets partially due to price competition with low-end products (e.g. Compo B produces nails and other construction products and Wood A produces wood products) or customer intimacy requirements and logistic challenges related to large investment products (e.g. Energy B). Operating via a carefully selected and low number of foreign partners, regionally international NNMs can build strong partnerships, enhance interaction, and co-create the framework for efficient flow of information, products, and services. The geographical and cultural proximity between the firm and the foreign partner makes the maximisation of such a close relationship easier. Our first example of a regional NNM is Energy B. The firm was established in 1966 but started exports to the Soviet Union in the early 1980s followed by Sweden in the late 1980s. The Soviet Union and later Russia accounted for about half of the turnover in 1990s, and one significant setback demonstrated how dependency on only one big market might be detrimental. The family founder and CEO stated that they had signed an agreement with a major customer there to begin joint production. However, this customer was shot to death shortly after, thus paralysing Russian operations for two years. Currently, the firm’s

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chief foreign markets are Norway, in which it mainly operates via one foreign partner, and Poland, in which it has its own subsidiary. While the strategically narrow focus on Russia earlier did not turn out well, the strategically narrow focus on Norway has paid off. For many years, the Norwegian partner and product deliveries through it have accounted for around half of the firm’s exports. The partner was discovered by the CEO of Energy B after a persistent, over ten years of screening of potential commercial opportunities in Norway. The longterm agreement with the partner has entailed that the partner oversees the many value chain activities of Energy B in Norway, including sales, marketing as well as installations of Energy B’s large-scale investment products. Energy B and the partner communicate almost daily and meet regularly. The partner firm has even brought its entire workforce comprising approximately 80 people to Energy B’s premises for a weekend refresher course not only for business-related training but also for mingling and partaking in recreational activities with Energy B’s people on an almost yearly basis. When asking about whether Energy B brings up their FF status as a positive marketing factor for internationalisation, the family CEO mentioned that they see their status as an advantage: Yes, we always tell [our FF status] and bring it up. For instance, for those boys working in skyscrapers in Houston, it is actually very good that we are this kind of a group from wilderness. It is part of our identity. If you look the other side of my business card, there is this lake landscape and else; we are from wilderness and kind of foresters, a FF. […] When we had had partnership with Norwegians, our biggest customer, for six years, […] they decided to come here two months back with their entire personnel, two busses, 80 persons, and spent a side-splitting weekend. And, specifically, an essential part was to come see these crazy Finnish. […] It is an essential part of our image; we do not want to be those pinstripe boys.

Devoting time and resources to maximise benefits from one significant network partner in Norway has been fruitful, and Energy B believes that it can face the evolving technological disruptions in its field effectively and proactively with and via this foreign partner. The quotes with respect to Energy B’s public company presentation made by the CEO represent the strategic and fruitful collaboration:

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Our goal has been to develop the leading automatic filling station in the world […] the collaboration between the firms has also led to the reduction of installation time of a filling station from 45 to 5 days.

Another example of a regional NNM is Compo B. The firm was established 1956, had imports from foreign markets in the first few decades but foreign exports did not begin until 1990s, the first being to Sweden. The primary foreign markets have been the same—Sweden, Norway, and Denmark—since the beginning of exports in 1990s. The firm acquired its competitor in Sweden in 2009, moved its production to the factories in Finland but left its sales and logistics operations in Sweden. The remaining organisation in Sweden has since operated as the subsidiary of Compo B. Having a subsidiary in Sweden has helped Compo B capitalise on the focus on Nordic countries as the firm’s foreign market. Focusing on the Nordic countries also seems plausible in terms of logistics and price competition. The communication between the Finnish and Swedish offices is daily and close, and the nonfamily director aims to use their basic knowledge of Swedish to enhance close collaboration with the Swedish colleagues. According to family and nonfamily directors, Sweden and Nordic countries have evolved into a sort of home markets for Compo B. The family director states the following with respect to the strength of relationships with the Swedish office and personnel: With some [the relationships] are of course stronger and with the other more conventional. […] If you think the personnel here in Finland, it [the strength of relationships] does not differ so much per se. Distance is longer and more rarely we meet, but when we have offices in Turku and Tampere at the moment, if you think about that, they [personnel in Swedish office] are not in different position. They are just in Sweden and the language is different of course.

A third example of a regional NNMs is Wood A. The firm was established in 1928 but was only internationalised in the 1990s by the third-generation family owners. The first foreign markets were Germany, Norway, and Sweden that were psychically close but also

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profitable foreign markets for Wood A’s wood products. The main foreign markets currently are Norway, Sweden, and Poland, and similar to Energy B, investing in strong network ties with Norway has been crucial for Wood A’s success in internationalisation. Wood A has had a long-term customer relationship with a big customer in Norway from 1994 to this date. Despite changes in the personnel over the years, the relationship has remained strong and committed, as Wood A and the Norwegian customer have ‘lived and grown together’ according to the third-generation family owner-CEO of Wood A. The owner-CEO and the Norwegian customer communicate daily. Wood A has even offered a ten-year exclusive right to sell for the Norwegian customer in the Norwegian market, partly because the customer once offered Wood A a substantial loan to invest in production; moreover, this agreement would provide stable flow of trade across the borders. In other words, Wood A has aimed to maximise benefits and capitalise on this narrow but strong network tie with a customer that has proven to be a trust­ worthy business partner for a long time. The family owner-CEO summarises the relationship with the Norwegian customer as follows: I can now trust that the volume level stays plus/minus ten percent the next three years all the time. As long as we stick by the market prices, it [the strength of the relationship] will not disappear anywhere. It is for sure that it [strong relationship] creates a frame for the activities. And they [the people from the Norwegian customer] willingly come and always smile when we see. So, you are left with good vibes from the business. And then of course, as we have cooperated with them for a long time, we know what things may bother them and else, so you can tackle those issues well in advance.

3.4.2 Global NNMs The time to internationalisation of global NNMs has usually been a bit shorter than regional NNMs. While global NNMs have been similar to regional NNMs in terms of initiating internationalisation in psychically close foreign markets, they have, however, rapidly switched the focus on psychically distant markets. These changes have often occurred due to

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some critical incidents. The established network ties to distant markets might have become stronger than in close markets, and the ties in close markets might have even come to end. Global NNMs can be argued to invest in NC in geographically and culturally distant foreign markets partially due to the significance of having trustworthy and stable network ties for operating in a challenging market. Two of the global NNMs, Mach A and Garment B, have established strong network ties with the Chinese market via subsidiaries. As a first example, Mach A was established in 1975, and internationalisation began in the 1990s to Sweden, then to Italy at the turn of the twenty-first century, and to China in the early twenty-first century. The difference with all the other case firms is that Mach A’s internationalisation has primarily focused on foreign imports. The exports have mainly been channelled through another big, global manufacturer, for which Mach A provides products. However, the established production subsidiary in China since 2007 has been crucial for Mach A to enhance global exports. Prior to China, Mach A had imports from India, but it noticed that there were too many quality and other problems with the Indians and decided to quickly direct attention to China. Despite the occasional challenges faced with the Chinese business culture, the subsidiary with enhanced production capabilities has been crucial for enhancing Mach A’s competitiveness through proximity to other stakeholders in Asia and enabling better opportunities for serving customers in Europe as well. Mach A has invested in developing relationships with the subsidiary and especially the local manager there, who has been a long-time employee and crucial link with other stakeholders there. Communication is almost daily and managers from Mach A travel to China every other month on average. Managers from Mach A have even attended weddings there for which the members of the Chinese subsidiary were very thankful. Not only business but aspects outside work are also important to operate in China. When asking the family manager about the relationship with the local manager in the Chinese subsidiary, the comment indicates strong relationship: Trust is strong at least from our side; she is very capable person with strong experience and has also probably grown together with our firm

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[…] she is very knowledgeable of what we do, can think strategically, and is also fairly practical.

Garment B has also focused in China. Garment B, established in 1976, rather quickly internationalised to China by accidentally getting a contact from a Chinese textile firm at the turn of 1980s. The business was mainly just imports from China, and in 1994, Garment B established a subsidiary in China, focusing on exports there. A critical incident here leading to the switch from imports to exports was when in 1991, the founder’s son bought the firm back from a large Finnish firm to which the founder had sold the firm in 1988. The firm had had exports to Sweden and Denmark in the early 1990s, but they gradually ceased and the focus switched to China. To this date, China has accounted for a major proportion of Garment B’s FSTS of about 70%, with South Korea coming far behind, with which Garment B established its second current subsidiary in 2009. The same CEO has worked for Garment B in China since the establishment of the Chinese subsidiary. The local CEO has been crucial to the success in China via her firm- and government-level contacts there. The relationship has been strong since the beginning, and the manager has been treated as a family member of Garment B. The family manager summarises the commitment of subsidiary manager as follows: The cooperation with the Chinese started already in 1980s. Actually, our current CEO of China [operations], Person X, worked as a translator for the founder of Garment B at the time when we did business with a Chinese textile company. We established our subsidiary in China in 1994 and since then Person X has worked for us. In Chinese context, this shows an unusually strong commitment, as it is a prevailing way to tender your value regularly in China.

The family manager emphasises mutual commitment; for instance, Garment B helped the Chinese CEO when she got divorced by finding her a buyable house in China, which was not easy in China in the 1990s. She was also crucial for Garment B when the firm expanded to the current second most important foreign market in South Korea,

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where there has been the same country manager for over ten years since 2009. In his personal interview, the country manager of the Garment B subsidiary in South Korea states that he also feels like he is a part of the Garment B family. When asking the manager about whether he envisions working for Garment B in the long term and is happy in the firm, he states the following: Yeah, at least, Garment B is a family company. Of course, we have a subsidiary in China market but still comparing to multinational company for a quite small and medium-sized, but we wanna make Garment B company a really global company. Of course, it takes time, but we can do that. So this, I have this goal, so I wanna, since I joined Garment B, I want to, they are good persons, so I want to not only give back return but also respect. I want to, and I want to make, help, actually I wanna contribute anyway for the second generation to be inheriting, the first generation was in really good shape.

Accordingly, Garment B has aimed to leverage its family nature, stewardship, and long-term orientation in their few narrow but global network ties. The focus on maximising the internationalisation efforts to these ties has paid off, and the managers in China and South Korea have become like members of an extended family. Garment B and its family members want to express that they truly care about their customers and partners by showing hospitality when receiving foreign visitors in Finland. At the time of interviewing Garment B, the family owners’ son was about to drive to the airport to pick up major South Korean partner visitors. The family CEO explains the following: This guy [a major South Korean partner], who arrives today, has his own chauffeur [in South Korea]. When we went to a restaurant with my wife [the family manager in Garment B] and the evening ended, he said that we can use his chauffeur. The chauffeur took us to our hotel, and he [the partner] waited in the restaurant. We were taken back [to the hotel], because he felt that we had done so much things for him [in South Korea]. When he travels to France, his parents let him use their own helicopter and little jet, something like this, but few are involved like we are. […] We cannot give money or else but we give ourselves. Today we go to

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one island and there is this one guy who has a jacuzzi and a speedboat, and he takes them [South Korean visitors] and lets them steer. There goes until the midnight, and by the way, they like to get drunk. I will be driving today so there will not be that much drinking, but tomorrow they will come to our cottage to take a sauna bath. They are eager to take a sauna bath.

By building strong relationships in China and South Korea, Garment B has been able to compete in a fierce B2C market in Asia as a small FF from Finland. For both Mach A and Garment B, these Chinese and South Korean partners have spun connections in the structural holes of the firms.

3.4.3 The Pros and Cons of Narrow Network and Relationship Commitment Management As evident from both regional and global NNMs, their narrow focus on foreign network ties requires consistent relationship commitment management. At best, this strategy yields profitable long-term international business with and via the partner or customer. The other side of the coin is that even matrimonial network ties can cause significant risks should unwanted or unexpected behaviour occur within the partners and customers. Chem A has had a key manufacturing and selling partner in Greece, via which Chem A not only manufactured its products but also attempted to open markets outside EU. The relationship with the partner firm has been strong, but it diminished a little when the CEO of the firm suddenly died and also paralysed Chem A’s international operations a bit at the time. The nonfamily CEO of Chem A states the following: With them [the Greek firm] we are on the strong side [in regard to the strength of the relationship]. […] An unfortunate incident happened that the CEO there, with whom I worked with from the beginning and with whom we did these plans, died in September, August-September. Now the [Greek] firm has struggled in getting a grip of itself after the death of a key person. But still, it [the relationship] is on the strong side. Before

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this [incident] it was very strong; we had very close relationship. But now of course, these last two months when they have been without the CEO, the owner has had to come back to operations and the operations still are to find their shape; it [the relationship] is not as immediate and straightforward as it used to be but still good as a whole. This just shows well how big a person risk there is in these operations.

Being strongly embedded in the ties might also lead to situations in which the case firms, willingly or unwillingly, are forced to intervene in the partner’s or customer’s internal conflicts and other problems. These situations might take excessive time from other operations but are considered essential to deal with to ensure the smooth continuity of the strategically important network tie. Special challenges arise when conflicts occur for a global NNM with strong ties to psychically distant network ties. Mach A encountered this with its Chinese subsidiary. The nonfamily CEO stated that the subsidiary’s accountant had not paid for overtime for one employee, as the accountant had not seen him at work. The truth was that the employee had been there and when his wife came to work to raise a concern with the accountant, the accountant still refused to pay. When the nonfamily CEO told the accountant that he/she could apologise and matters can be resolved, he/she said that he/ she will resign because the couple (employee and his wife) are older and he/she would lose his/her face if an apology is required. Although this incident was not business critical per se, it showed how cultural differences in strong network ties might give rise to challenges and how Mach A, having established a strong tie with the Chinese subsidiary as part of an extended family, had to put effort in resolving the ‘family conflict’ as a core member of the extended family. Although there is the risk that FFs might have to put excessive amounts of resources into resolving conflicts and managing relationships in their strong network ties, they might have advantage over nonFFs in utilising their family reputation, trustworthiness, and long-term orientation. As seen in Garment B’s case, the familial support for the Chinese CEO bore fruit. FFs, through their multigenerational continuity, can convey the key foreign network partners and customers that the strong ties and consistent business relations should also continue in the

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future when the later generations transfer (tacit) knowledge to the new generations. An interesting case Mach F, a manufacturer of woodworking machinery with narrow but global internationalisation scope. The firm’s third largest market is Zimbabwe where the firm sell products via a local agent. This person was already noticed by the founder father of the current family CEO of Mach F in the 1980s, but actual business with him only started in 2009: It [Zimbabwe] emerged in a way that my father was a teacher in a woodworking school in Kotka [a city in Finland] in the mid-1980s, ran a course there and this Zimbabwean guy was there as a student. And then, in 2009, he noticed that we manufacture this machine and asked if it would be possible to buy one of those. His budget was not favourable, but we found a used one for him and then it started. His sawmill operated well and gradually he became our agent there [in Zimbabwe], [also] takes care of the after sales. We send spare parts to him via containers, he takes care of it and has been able to close deals. A development cooperation has paid off well; in 1980s a thousand Finnish marks have been used to have one guy in a course, and this has brought revenue about 1.5 million back to Finland.

When asked about the strength of the relationships to the agents of Mach F, they are all strong, as illustrated by the family CEO: Let’s say that they have all visited our summer cottage, and I have visited all their summer cottages.

3.5 Broad Network Enablers (BNEs) BNEs do not wish to commit to only a few foreign partners in a given market but rather enable faster and more profitable growth of foreign sales via multiple partners and multiple foreign markets simultaneously. Instead of maximising the potential benefits by concentrating efforts on a low number of foreign partners (cf. NNMs), BNEs aim to maximise their internationalisation efforts by enabling the large number of network ties to increase the sales coverage around the world, usually

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via low-commitment agents and distributors but also via strategically located sales offices and subsidiaries. In other words, the management of an extensive set of network ties can be considered ‘portfolio management’ for BNEs, while the management of a narrow range of network ties can be considered ‘relationship commitment management’ for NNMs. Although the extensive coverage of network partners might cause bigger coordination challenges than for NNMs, many BNEs attribute importance to maintaining familial, community-like, and a supporting network among the partners while simultaneously inducing healthy competition within the different partners and regions. Similar to NNMs, foreign partners play a crucial role in paving the firms’ way into culturally challenging markets, which is further emphasised by the relatively more high-end and niche products BNEs provide. Therefore, it is true that BNEs might partially opt for active and multidirectional international networking due to the global potential their products enable. Decor B can be argued to be an example of an BNE. This manufacturer of wooden design lamps, established in 1995, began its internationalisation at the turn of twenty-first century in Sweden and Germany and currently has over 60 export countries and over 90% FSTS. They entered Sweden and Germany first as they were considered psychically close yet potentially profitable markets. The active communication and especially the use of trade fairs expanded the partner network rapidly and globally. The firm relies on an extensive range of local agents and distributors in the foreign markets for active foreign sales. Although the firm itself does not have resources to be in constant contact with everyone to promote sales activity, it invests in attending trade fairs around the world regularly, meeting foreign customers and partners and inviting them to Finland and promoting a sense of communality within its stakeholders such that everyone can be a part of a coherent global salesforce. Decor B wishes to create a sort of ‘Decor B family’ with its partners as stated by the nonfamily CEO of the firm: [With most of the foreign partners], we have very warm and pally relationships. We have wanted to create a kind of ‘Decor B family,’ and then they [the foreign partners] report all kinds of things, for example regarding forgeries, overseeing our interests, and encouraging as much as they can.

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Decor B recognises the value of close relationships with foreign partners and customers but indicates that ‘portfolio management’ and prioritisation of the most important network ties are to be focused on. The founder illustrates the following: I would say that, in general, in all of our biggest markets, whether it is Denmark, Benelux, Germany, Sweden or Norway, all these, we have had the same representatives for a very long time, to which […] we have pretty close relationships. You know about them much else, probably have met the family, and in private life we are Instagram friends and Facebook friends, this kind of. We have pretty solid relationships to them. When you go to these markets that are not so important to us, then it is more like business acquaintanceship only, pretty official, and we have not met that many times necessarily. But then these [partners and customers with strong network ties] are almost part of our firm, they are more like extension. It is very important because then they are committed. For instance, we have these agent meetings, to which all our representatives, well not all, but European representatives have come here and we have spent few days here together, and there many have mentioned that they feel that they are part of Decor B family. […] Of course, every now and then there is this balancing needed that when you have pretty close relationships, and it is about business in the end, you must weigh that although this person is lovely and very nice, it will not necessarily work out for the business. […] But on the other hand, I believe that […] if they remain as business acquaintances, very superficial, it is hard to commit those people to your thing. And if you cannot commit them and make them believe, they pretty easily might switch to other brand and start representing that instead.

The statements about considering the foreign partner network as a family and involving many pally relationships come up many times in the narratives of the family founder and long-time nonfamily CEO of Decor B. Accordingly, Decor B appreciates the maintenance of strong network ties but not at the expense of business goals. New network ties are sought to accelerate international growth and increase the visibility of its visually attracting products around the world.

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Mach B, a manufacturer of hydraulic equipment for mobile machinery was established in 1986 and internationalised fast in the turn of 1990s to Sweden, Germany, and other Middle European countries. Active footwork of the family founder-CEO in the beginning and later of the other employees has led to over 70 foreign country markets and over 90% FSTS today. It operates via an extensive foreign dealer network, a multi-channel internationalisation strategy, in all continents and offers no partner exclusive rights to sell its products, the rationale behind which was rooted in the poor experience with the first foreign partner in Sweden. Mach B had agreed to provide the exclusive right to sell to the Swedish partner, but the partner failed to sell the products effectively, preferring to wait for the market to come to them. The Swedish market had stagnated, but the agreement was luckily only for six months. The founder-CEO then decided that Mach B would never give anyone exclusive rights to sell. Accordingly, Mach B noticed in the beginning that devoting narrowly to only a few partners has its risks (cf. the regional NNM Wood A and its successful example with the Norwegian customer). The numerous foreign partners along with the policy of no exclusive rights to sell enable active and expansive foreign sales. The large number also means that there are not enough resources—or will—to provide special treatment for each partner. However, this did not imply that Mach B did not care about its partners; instead, the partners are encouraged to be responsible themselves for promoting Mach B’s high-quality and niche products and would be provided with additional support to achieve the same. Healthy relationships are still valued which is manifested by sending salespeople and engineers to meet foreign partners and customers, participating in trade fairs regularly, and holding annual dealer meetings with the foreign partners. The quotes from the family founder-CEO and family Executive Vice President (EVP) (father and daughter) indicate similar a ‘portfolio management’ as in Decor B: CEO: Mach B wants to be loyal to everyone, which also means that there is not extra social activity and interaction with the best partners; relationships are mainly business-related, so that everyone is on the same

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line. There are some top distributors who have been in partnership with Mach B for around 20 years, but Mach B does not want to commit strongly to just certain actors, which could prevent them from having other relationships in line with the multi-channel approach. Continuity is however appreciated. EVP: We want to have relationships where there is strong trust and which are close, but there are distributors who just want to sell Mach B’s products when they ask, and not to build the market together. Due to this it is important to identify different kinds of distributors, and with those who are willing to be more in a close partnership with Mach B and build up the market, they are invested in, and with others, Mach B just wants to make the relationship warmer.

Many BNEs (such as Decor B and Mach B) use low-commitment operation modes such as agents or distributors extensively around the world to capitalise on effective and wide-reaching networking, but Mach E is an example which also uses wholly owned subsidiaries of its own to effectively promote their niche products globally. Mach E has subsidiaries in Germany, France, the USA, and Sweden and also has sales offices in China and Oman. Interestingly, Mach E’s internationalisation strategy in terms of foreign operation modes have evolved in the following manner: during the early internationalisation, the firm relied on building the global dealer network (1994–1999); it subsequently switched the focus on establishing subsidiaries (the US in 1999, Germany and the UK in 2000, and France in 2002), but then again started focusing on expanding the dealer network. Accordingly, the internationalisation process first followed a traditional pathway from low-commitment to high-commitment foreign operation modes but then started changing direction ‘back’ to the broad use of low-commitment foreign operation modes. The family CFO and member of the board opened up the focus switch: A subsidiary is just a representative that we own. Why would we put our money in those? Rather, we train, invest in and hold on [many] representatives.

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He further confirms that the focus on broad dealer network enables flexibility and the speed to respond to varying demands and that relying excessively on only a few foreign partners diminishes the agility of the network. Therefore, he implies how Mach E might not maximise the full potential of foreign sales by maximising the benefits from a few foreign network ties like NNMs, but instead it would let the broad dealer network enable effective foreign sales activity. However, as also mentioned in Decor B’s and Mach B’s cases, close relationships with the dealers are desired, but the mindset of ‘portfolio management’ in valuing significant and less significant partnerships differently exists, as pointed out by the nonfamily CEO: It is funny how well the old 80-20 rules [the Pareto principle] is applicable. […] With some [foreign partners] they [relationships] work; there is transparency in all activities, plans are shared, customer relationships are shared, discussions are open. We can plan things together. We share common interests and discuss them openly. You could say that there are these [strong relationships] about 20 %, whereas 80 % are less strong. Examples of these [partners with less strong relationship] are that some have five or ten other products [to represent] and along them do decent job but are not that focused.

The partnerships with these influential foreign partners have lasted very long, indicating how Mach E’s efforts on valuing the most significant partnerships have reflected to committed and fruitful business. The family CEO states the following regarding the strong relationship with the long-time agent in the US: He visited us in Finland about 100 times. And for him this [business with Mach E] was like a baby, a child. This was very important for him because he had been growing this for a long time. […] This buddy from the US turned 72 years old and would have wanted to continue, but it was not possible. […] The pain of abandonment was noticeable.

Similar to Mach B, Mach E has established different dealer programmes in which different Mach E’s managers maintain close contact with respective dealers to increase awareness and foothold in gaining

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knowledge of and influencing dealers’ activities. The nonfamily CEO added that these managers travel to meet the dealers two to five times per year to go through the current state and future plans. Dealer meetings are arranged annually to conduct up-to-date training and also increase networking within the dealers themselves.

3.5.1 The Pros and Cons of Broad Network and Portfolio Management As evident from the BNE examples, an extensive network of foreign network ties enable faster and broader reach to different markets around the world and thereby better growth opportunities for foreign sales than for NNMs. Portfolio management of strong, medium, and weak ties enable agile reaction to emerging, profitable business opportunities and capitalisation of structural holes. Furthermore, BNEs might be able to build community-level social capital and relational embeddedness among the partner and customer network, which facilitates capitalisation on strong network ties in the long run and conveys the sense of operating as a whole in the global expansion. Being an FF might help coordinate the international portfolio of partners and customers as an ‘extended family’ as the inherent long-term and stewardship orientation can be reflected to the community of network partners and customers. Indeed, the FF status and the image of trustworthiness and consistency can be central to international marketing and management of international network ties for both NNMs and BNEs. This benefit is also mentioned by most of the case firms. For instance, Mach E and its nonfamily CEO answered the following when asked about whether they bring up the FF status as a marketing factor in foreign markets: We bring up. In our firm presentations, it is in almost our first slides that we are a FF. We see it as a strength, because we do work with the network of representatives and it signals to these people that we are not faceless, but you can discuss with the whole orchestra from the Chairman of the Board, the board and the owner. Hierarchy is very low and there are no heavy processes nor matrix organisation related to large corporations, in which you do not know who decides and on what.

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The family CEO of Meter B is on common ground: Yes, we bring up [FF status as a marketing factor]. […] I have felt that it [FF status] brings some kind of trust; that our operations are not based on some quarterly economy or something like that. […] There will be no hasty or arbitrary changes in here. […] We bring up that we have been operating for already 50 years; so this is long-term, stable and trustworthy business.

There are, however, also risks related to the management of large portfolio and ‘placing more bets’ such as in ‘casino model’ of internationalisation (Håkanson & Kappen, 2017, p. 1106). NNMs might take the risk of maintaining stable relationships with the narrowly chosen network ties to prevent significant declines in foreign sales, but BNEs may also face major challenges if network ties are not nurtured and maintained properly or if the profiles of BNEs simply do not suit that of the foreign partners. Meter B and Mach E have faced the ‘domino effect’ of losing many network partners due to unpleasant behaviour by the FFs. Meter B had several agents in different countries who shared a parent firm. However, once this parent firm decided that Meter B’s products did not fit its product portfolio and brand image, the agents were forced to stop representing Meter B. The agents in France and the Netherlands continued for some time, but they too eventually ended the partnership. Meter B was able to continue operations with other agents in these countries by asking its previous partners for potential new ones. In Spain, the initial agent wanted to continue with Meter B and decided to break free from the parent firm on the grounds that Meter B’s products were the primary source of income for the partner. Despite being able to get back on track in all these countries gradually, the momentary discontinuities in many important foreign markets caused the decline of foreign sales and excessive resources devoted to retrieve the situation. When Mach E started exporting its products, it had foreign partners in Germany, France, the UK, and Italy. The firm decided to cooperate with a major manufacturer in its industry, utilising sales channels that would extend via the new manufacturer to nearly 200 countries. This partnership caused displeasure among the existing partners all of whom ended

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the partnership. Similar to Meter B, Mach E had to build new partnerships in each country and suffered short-term declines of foreign sales and resource commitments made to resolve the situation.

3.6 Overview of the Success Factors Behind Family Firms’ International Networking 3.6.1 High-Quality Products in Global Niches and Preventing Bifurcation Bias Many FFs in our study resonate with the internationally successful family-managed SME type defined by Hennart, Majocchi, and Forlani (2019) who found that focusing on high-quality products in global niches and leveraging the social capital in customer relationships is advantageous for FFs compared to non-FFs. As illustrated by the family board member from Meter B: It [FF status] would not necessarily work in all kinds of brands, but since our brand is associated with us being high-quality and trustworthy, or that the products last and function decade after decade, I feel in a way that family business is a good thing as a supporter of that image.

It is noteworthy that these kinds of successful family-managed SMEs can be found both within NNMs and BNEs although BNEs incline more towards niche products and markets. Wood A, an NNM, which focuses on providing high-quality Finnish wood products for a narrow component segment in construction and mainly to Northern Europe, has witnessed profitable business and 90% FSTS owing to the persistent and active involvement of the owner-CEO in building long-term customer relationships in foreign markets. For instance, as mentioned previously, Wood A has had an influential customer in Norway for over 20 years, a customer from which the owner-CEO was able to obtain a substantial loan for upgrading production in Finland. In return, Wood A offered the Norwegian customer an exclusive right to its products for

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over ten years, which the customer was willing to accept as it would secure a continuous supply of high-quality products from Wood A. Mach B, a BNE presented earlier, which is a leading manufacturer of hydraulic equipment for mobile machinery globally, has established long-term relationships with dealers thanks to continuous development of new high-quality applications and sales development with dealers and relationship maintenance through active communication and regular meetings such as in trade fairs or annual dealer meetings in Finland. While the role of the founder-CEO has been crucial in developing the network in the long run, his daughter has increased her presence in the business by first being a Sales Manager focusing on specific foreign markets and later being appointed to the role of EVP responsible for all the sales of the firm. Therefore, she operates closely at the dealer and customer interface and can leverage the knowledge transferred from her father for continuing successful internationalisation. In two videos aired in early 2019, the daughter EVP has been the face of 2.5-minute videos from start to finish to review last year’s results, show the expansion of production facility, as well specially greet customers and partners to visit the firm in the upcoming major trade fair in Germany. The videos show how Mach B and the family member in top management position aim at developing trusting relationships and establishing a superior image for their stakeholders by utilising the face of FF. Hennart et al. (2019) suggest that family-managed SMEs can often manage without internationally experienced nonfamily managers when they build on FF-specific unique resources to capitalise on global niche internationalisation. As seen in the case firm examples above, this might be the case, but our evidence also makes a strong case for the significant role of nonfamily top management for thriving in global niche internationalisation. The significance of nonfamily expertise in management has been also widely recognised in literature on FF internationalisation (e.g. Calabrò, Campopiano, Basco, & Pukall, 2017; D’Angelo, Majocchi, & Buck, 2016; Ray, Mondal, & Ramachandran 2018). Kano and Verbeke (2018) listed cross-border operational meritocracy as one of the five successful practices for overcoming bifurcation bias, i.e. preference of dysfunctional family assets over functional nonfamily assets, in family multinationals, implying that managerial competence

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is particularly important in complex international environment regardless of kinship status. Moreover, the role of nonfamily management has been associated with global internationalisation while firms led by family-dominated management excel in regional internationalisation close to their home market (Banalieva & Eddleston, 2011). D’Angelo, Majocchi, Zucchella, and Buck (2013) found that specialist nonfamily executives along with the firm’s focus on product innovation enable successful global (instead of regional) export performance in FFs. Our findings support these aforementioned notions as BNEs, which have been more globally oriented in their internationalisation process than NNMs, have been more inclined to move from family CEOs to nonfamily CEOs to intensify and expand their internationalisation process. For instance, Mach E and Decor B, which have achieved 85–95% FSTS and export sales covering all the continents as of 2018, have been led by nonfamily CEOs since 2014 with the primary focus on developing foreign operations, contacting the foreign partners and customers, and overall enhancing their market position in their global niche. The nonfamily CEO in Decor B had been the export manager in the firm from 2007 to 2014, and the nonfamily CEO in Mach E had had over 20 years of experience primarily in international sales moving from middle manager to top executive level in the same industry prior to joining Mach E. The first nonfamily CEO of Meter B was otherwise competent but largely unwilling to go overseas and meet partners and customers. The Chairman of the Board from the family decided that he would resign this CEO and aim to find a new nonfamily CEO, with international networking as the primary focus. Based on the social media platform LinkedIn, Meter B achieved their goal in finding a good candidate, to travel around the world to attend trade fairs and meet stakeholders and post about the same. The Chairman of the Board frequently likes these posts. At the time of the interview, before the hiring the new nonfamily CEO, the Chairman of the Board said: Let’s wish that this is a step that the new CEO will be appointed with the title that he or she is sales-oriented and he or she will use about 50-60 % of his or her time in contacting customers, representatives, and get the sales growing.

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His daughter and board member of Meter B added: And expressly he or she would go to improve foreign relationships […] the first thing for the new CEO to do is most likely to visit the most important representatives and talk with them, what are their feelings, how are they doing,, what are their opinions of our products, what are their wishes, and then start digging into these. For instance, I think it was Switzerland, where it happened that one of our Swiss competitors, bought our representative there, and now our agency is in the hands of our Swiss competitor [laughs]. There might not be that big a motivation at the moment to sell our product.

Accordingly, while Hennart et al.’s (2019) definition of a successful family-managed SME in a global niche of high-quality products resonates with our case firms, these case firms also show that nonfamily members in top management contribute to internationalisation success especially globally. In line with Banalieva and Eddleston (2011), we found evidence that there are more firms in the NNM-category who have succeeded in establishing a strong international market position regionally by focusing on Northern Europe or Scandinavia and having a family CEO from the beginning to the present (e.g. Decor C, Combo B, Energy B, Wood A). Banalieva and Eddleston (2011) argue that as trustworthy network ties are easier created and maintained regionally than globally, family-led firms might succeed in relation to this due to their ability to extend intra-organisational social capital to inter-organisational social capital, long-term orientation, and tendency to conserve regional reputation. The ability to establish strong network ties is further reinforced by networking with other foreign FFs, which creates reciprocal community-level social capital, i.e. ‘inter-organisational familiness’ (Lester & Cannella, 2006). For instance, Wood A, led by family owner-CEO, has achieved 90% FSTS with the main foreign markets being Norway, Sweden, and Poland. The owner-CEO has been determined to and successful in creating long-term and trustworthy network ties that focus on nearby markets as indicated previously. The family-led Energy B has achieved 50% FSTS with the same primary foreign markets as Wood A, and there has been a similar kind of instance in

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creating strong and long-term network ties by the founder-CEO family member. Accordingly, it is not that regional internationalisation would be automatically less valuable than global internationalisation, but the different strategic goals in terms of international expansion as enabled by the firm’s resources, capabilities, and industry can yield profitable results both regionally and globally. An essential factor might be the family/nonfamily character in top-level management and how firms can leverage competence vs. social capital benefits in international networking as an FF. However, taking a step back to align with Hennart et al. (2019), the case firms also make a strong case for the significant role of founding family members engaging actively in building strong foreign network ties from the beginning of internationalisation, the social capital of which and its maintenance can then be effectively transferred to new family members involved in the business. In the global niche and B2B businesses, the case firms mostly operate in (including those primarily B2C-firms who still operate through B2B-partnerships to conduct foreign distribution for their niche products, such as Garment B, Chem B, and Chem C), it is important to build trustworthy and long-term relationships with partners and customers to induce commitment for continuous improvement, reciprocity and dialogue. As the customers of niche products are relatively more homogenous and less sensitive to price changes than the customers of mass-market products, there is less need for market-specific differentiation and production close to customers (Hennart et al., 2019). However, the ability to operate through exports and possibly without internationally competent nonfamily managers and substantial amount of external capital does not diminish the value of foreign partners as central actors in the global value chain of the FFs. The successful FFs in our case data provided evidence of the value of family members in building long-term social capital with their key foreign partners which had clearly contributed to the FFs’ success in the partners’ respective markets. We discussed previously how Mach B’s second-generation EVP was able to maintain close relationships with foreign dealers, and this would not have been possible without the active, grassroots-level groundwork done by the founder-CEO and father of the current EVP. In the early internationalisation, the

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founder-CEO was persistent to travel abroad to meet prospective customers with limited language skills and the voice of a consult belittling his internationalisation intentions at the back of his head: I packed the goods in the car and went around Europe and various fairs. My goal was to open the door of twenty [prospective] customers every day. In the evening I surveyed the next day’s destinations and marked them on the map.

He states that the best investment Mach B can make today is buying flight tickets for its personnel to meet foreign customers and partners, and his daughter EVP is clearly an embodiment of this strategy to be actively networking and maintaining close relationships worldwide. Similar interesting foreign-sales-promotions-by-car stories are also shared by Meter A, Wood B, and Mach G. Meter A customised an old mobile library into an exhibition car equipped with Meter A products and toured Europe and North America to promote Meter A and its products along with local partners. The third-generation CEO of Wood B, which had 70% of sales coming from the domestic Finnish market at the turn of the 1990s, decided to close their sawmill, travel by a car with his wife and three sons to Germany and search for compensatory export markets at the time when recession significantly decreased domestic sales. Consequently, significant customer and partner relationships were established, and Middle Europe has been the most profitable foreign market till date. One of those three sons is the CEO of Wood B today and fosters the long-term and fruitful network ties for the future. Similar to Mach B and Meter A, Mach G established its extensive European network of foreign partners by touring around Europe and showcasing Mach G’s products and know-how with a truck customised into a mobile exhibition stand. The third-generation family CEO opens up regarding the importance of touring as follows: It was brutal footwork. At best, or worst, I went to nine different places in two weeks. The days passed by the highway, and when I got there, I put overalls on, set up the stand and showcased our cranes and components to the experts. In the evening, the journey continued. Often, I slept

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the nights in the hotel, but sometimes in the car cabin. Through this, we made a breakthrough in Europe, you could say. We got an extensive dealer network.

Such road shows have become familiar to the fourth-generation family CEO, the son of the third-generation family CEO, who has been touring in the UK. He states that they have, overall, toured around Europe with their trucks for at least 250,000 kilometres. In many case firms, family members, irrespective of whether they have an official position in the firm, have been engaging in foreign customer and partner relationships since childhood. They have been present when customers and partners have visited firms’ premises and family members’ home. They have also been with the firm when attending foreign trade fairs and doing international networking there. Family members have also utilised their holiday or study-related trips to foreign countries as chances to visit foreign customers and partners in the process. In this manner, not only have the family members been able to build the knowledge of the industry and B2B relationships of the firm but the foreign partners and customers have also got the chance to get acquainted and envision a future with the prospective business partners from the family, thus generating long-term mutual social capital and relational embeddedness (Nahapiet & Ghoshal, 1998). Preparing for the global niche businesses, family members in many case firms have invested in international education both in terms of the subject (e.g. international business) and the study conducted abroad as well as in terms of international work experience, both prior to and during the early stages working in the FF. International education (Kano & Verbeke, 2018) and international work experience (Gallo & Pont, 1996; Majocchi, D’Angelo, Forlani, & Buck, 2018) for family members have been studied as critical human assets for FFs for successful internationalisation. Interestingly, in many case firms, the first official jobs in the firms, to which subsequent generations of family members have been appointed, have dealt with international sales. For instance, the EVP of Mach B mentioned above majored in international business in her studies (also writing her Bachelor’s and Master’s theses on Mach B’s corporate image), conducted work training in

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Mach B’s sales office in China and has worked in international sales-related jobs in Mach B till present. Both the daughters of the family CEO of Compo C have graduated with Master’s degrees in international business and have studied abroad. Both the daughters operate in board roles, but the youngest started working as a business developer employee in 2018 and has previously worked in a foreign firm in the same industry as Compo C. In summary, the family SMEs in our data portray that the family members (and nonfamily members) respect the past and the history of the FFs, but are willing to move forward and be more receptive to new ideas inside and work outside the FF in a way that is suitable for modern business environments and modern international networking. Functional family and heritage assets, such as digital capabilities of new generations and accumulated knowledge of the partner relationships by the older generations, are leveraged. Dysfunctional family and heritage assets, such as poor managerial and board competence, are replaced with nonfamily assets, such as nonfamily CEOs and external ownership with international business experience. For instance, the important network ties to Switzerland, initiated by the third-generation Chairman of the Board and former CEO of Wood B in 1990s, have lasted till the present day. The fourth-generation CEO and son of the former continues to nurture these ties, ‘the buttress for the last 20 years for Wood B’, while simultaneously and innovatively creating new ones in psychically more distant markets. The former one has visited over 40 times Switzerland over the years, while the latter has utilised WhatsApp and WeChat messaging applications to quickly contact people and make deals: for instance, in China. The current family CEO summarises the benefits of both methods in combination for social interaction and gaining competitive advantage in the traditional sawmill industry they are in: I see that the quickness of communication, whether it is email, WhatsApp, or WeChat, has been our advantage. The other is the active communication, visiting them and meeting them; it is the combination of these two. We can maintain the personal contact but also get quick answers when needed.

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Meter B, which was earlier mentioned concerning the importance of having a nonfamily CEO, uses student connections of the thirdgeneration board member and Ph.D. student from the family. While the family members have visited their foreign partners on holidays and other occasions, a more strategic and systematic approach to managing partner relationships is required. The Ph.D. student acting as a board member had not just initiated discussions about changing the previous nonfamily CEO to a more internationally active new one, but commissioned student assignments in her university on topics like foreign partner evaluation. She, with the help of student assignment results, have shaken up old practices. She explained the same as the following: We had some representatives, in the product catalogues and websites of which there were no mentions that they even sell our product. […] It has been very good discussion [with the students], as it has evoked us that part of our representatives are such which my grandfather has found in 1970s and then they have just remained. And then, in those firms, generations have changed, employees have changed, and our product is not necessarily really important in their portfolio, but the representative has just remained. So now we have come to evaluate more closely the representatives and think if we really should change part of the representatives and find completely new ones to replace them.

For some family SMEs, the perceived required changes to make the firms more internationally competitive have not just been internal, managerial, and processual. Instead, they have required heavy external ownership. Wood A, established in 1928, sold 50% of its shares to a foreign customer in 2017, with the primary aim of ramping up Wood A’s production. Compo C, established in 1921, sold 40% of its shares to the competitor in their industry in 2013, with the main goal of expanding the sales network globally and making foreign sales more professional. Mach G, established in 1912, sold its entire share capital to a foreign firm operating in the same industry in 2018, due to the costly financing of planned succession and owed to the extensive global sales network provided by the new owner. Accordingly, these family SMEs made major decisions to give up a big part or the entire family

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ownership after almost a 100-year and multigenerational history as an FF to be internationally competitive in the future. Yet, in all three cases, the acquiring foreign firm was also an FF, which had facilitated the selling process. The family CEO of Compo C states that the FF status of the new part-owner was a significant positive factor in addition to their operational synergies and competence prior to the ownership agreement: Absolutely [the FF status of the acquiring firm was important]; there were similar values and the fact that we both had very similar sales channels. We had same agents. We had a lot in common. We even were often travelling at the same time and from there it [cooperation opportunities] started to take shape gradually. We had to offer them in some technical solutions, while we saw that they had to offer a huge sales organization. Here [in Compo C] we have had me and another person running the export sales. Theirs was very organized and now we have good programs going on with them. We [Compo C] change the entire mindset so that raw material should be sold to final targets and bring closer to the final buyer.

For Mach G, it was a relief that the acquiring firm had FF roots despite currently being a public company, as the identity and values matched in addition to the business-related resources. Mach G turned down offers from venture capitalists and chose this firm instead. As expressed by the nonfamily manager, whose husband used to be a minor shareholder in the firm: Let’s say that, in my opinion, this transaction brings Mach G as a firm a big opportunity; this opens. I have said publicly that I knew the longtime third-generation family owner and former CEO wanted to sell his shares and get out. My worst fear was that some investment firm would have come here as an owner, which then would have just milked the money, shut down [the firm] and go. So I think that this foreign firm that bought us was the best possible solution, because this expressly opens up and lets us develop our firm. Basically all [the people] in Mach G saw this change as positive. But on the other hand, one old Finnish family firm went again to overseas.

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Indeed, it was not an easy decision to sell the FF owed to its heritage and SEW, indicating how FFs deal with the mixed gamble of maintaining a balance between economic and noneconomic (SEW) dimensions when developing their business, in the international front as well (e.g. Alessandri et al., 2018). For instance, the family CEO expressed the following: I still have not recovered from that [selling the shares]. It has been two weeks since we put names on the paper. But still, my personal challenge is that I do not have heritage to leave for my children. I have ten-and eightyears-old children, who have been grown directly into this family entrepreneurship. They know what it means. But now, I do not have heritage to give them; I have to create it in some other way. Or get over with the problem. It starts with selfish starting points like these. Another thing is that I do not have that direct decision-making power that I used to when we had the ownership. The family owned 60% of the shares, and still there [was] very good spirit and understanding on what we were doing among the shareholders. The influence has been directly bigger on the firm’s operations. But now the opportunities to influence will change and the playing field will change. You must practice a bit, what does this new firm want to do and what it wants from us, and how we can influence to where we are going. Adapting to that is the next task.

As was described in the case firm descriptions, there were attachments to various SEW dimensions (Berrone, Cruz, & Gomez-Mejia, 2012) among all the family SMEs, notwithstanding whether the number and level of SEW preservation tendencies were low, medium, or high. Accordingly, although many family SMEs tackle the bifurcation bias (Kano & Verbeke, 2018) effectively, they often have concerns over family control, generational continuity, and other more or less emotionally loaded aspects of the FF, in addition to international networking. A way to ‘ease the pain’ can be partnering with other FFs in internationalisation and even in ownership, as has been presented earlier. In other words, one of the SEW dimensions suggested by Berrone et al. (2012), binding social ties, may be important—the FF status and embracing FF-specific features may be one of the key methods to succeed in international networking. We will discuss this further in the next chapters on

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successful foreign partner selection and leveraging FF status in international networking.

3.6.2 Choosing the Suitable Foreign Partners and Customers Whatever the international networking strategy the FF executes, similar and interrelated characteristics for desired partners, customers, and people within the organisations are often recommended: (i) existing network ties and activity to create new ones in the local market and beyond; (ii) experience- and knowledge-based competence as well as/ instead of the interest in FFs’ products, cooperation, and growth; (iii) identity of the FF but also integration in the local culture; (iv) openness and credibility. It is not merely the networking capabilities of the FFs themselves that narrowly or broadly lead to profitable foreign network ties but also the scale and scope of the network ties and channels of the foreign partners that facilitate the FFs’ establishment in foreign markets. The FFs’ resource limitations to execute extensive marketing and sales promotion in the foreign markets require agents, distributors, and people in the subsidiaries with an existing customer base, contacts, and channels or the ability to acquire those for the FFs. The case firms also highlight the significance of having foreign partners who can help FFs create new network ties with the markets beyond the primary local sales territory the partner has been assigned. Chem A and its nonfamily CEO emphasise the role of its Greek selling and manufacturing partner in opening and managing network ties to the psychically distant markets with its resources: Let’s take, for instance, the Arab countries. There were many Arab contacts with all these twists and turns, and that was where I also found that our, Chem A’s resources […] are not enough that we could start doing direct trade to Arab countries, marketing, support and supply chain, invoicing, and all that. So, it is better for us to operate via a partner, which has all these mechanisms in place and people who take care of them. They have routines for that versus the situation where we would

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start building all from bank guarantees, delivery guarantees, subcontractor transportation and else, the operating model there. So, we realised that it is easier to rely on this partner. […] It alleviates our own resource needs when we do not go first building the order-supply chain.

As indicated previously, networks of networks have been helpful for FFs to gain new partners and customers, for instance, in situations when a network tie to a partner has terminated and replacing or complementing network ties have been sought. Meter A was able to continue its North American subsidiary rather smoothly by utilising networks tie the existing partners provided: In the beginning, we used this consult. Through his contact network, we found this young guy who had worked in the same firm in the past, and he left from here [in Finland] to establish the subsidiary in the North America. A Finnish guy. He was there five years and came back to Finland. And then his successor was actually his best friend, who moved with his family to the US to continue [running the subsidiary]. He did not enjoy and ever feel the life over there to be his own, and pretty quickly came back. He was there maybe two and a half years. At that point, we had hired to the North American subsidiary a salesperson, who was the former owner of our former, or current Dutch representative, the firm. He had decided to retire and move to North America, or Canada, as he had went to schools quite a bit of his childhood. He felt a kind of desire to live and spend time in Canada. And he had decided to stop working. And then, when he had moved over there and twiddled his thumbs for half a year, he contacted us whether we had to offer some job there in North America for him. He, after all, was willing to continue with our products and sell them. He first started as a salesperson there. And then at the same time, when this other Finnish felt that he would like to come back to Finland, all fell into place. We opened up discussion. […] The outcome is that he [the Dutch guy] now leads the North American operations of Meter A.

The networking capabilities of the foreign partners predominantly stem from their experience- and knowledge-based competence. The family CEO of Mach C states the following:

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We have a good, competent guy in Germany, who has strong background in pulp and paper industry. Germany is very difficult market; there is a big local firm […] it is very strong there. But this our representative has been able to get us, in a way, into this firm and via it we have gotten, we have got into the projects of this firm to supply our devices. […] He [the German representative] has good knowledge of what happens in our markets due to his past. He has contacts to very high level, so the business works via him well.

The experience- and knowledge-based competence is not sufficient if the partner lacks genuine interest in the FFs’ products and growth mindset. The nonfamily CEO of Mach E emphasises the following: Maybe the leading, only thing that I think is very important is that it [the foreign partner] must be truly interested in doing business with us. […] There are those who just want names on the list or trademarks to their distribution list […], because it is a matter of status. Or there are those who, for some reason, promise us the moon. […] The most important thing is that there is someone who really takes responsibility for business development; the development of our business.

For many FFs, the ideal foreign partner is of the same size as the FF itself as it provides better efficiency for selling and promoting the FFs’ products. The Chairman of the Board and the nonfamily CEO of Meter B illustrate the following: Chairman of the Board: When they [big foreign partners] have ten million products in their repertoire, and our products add only ten more lines on top of the ten million, you cannot find anything there. CEO: We do not seek for too a big firm, because we cannot be such a significant actor for a big firm that it would invest in marketing [of our products]. We seek for a hungry, smallish firm that is capable to grow and operates in the right markets. For our products, the right channels should be largely familiar. If we sought for too a big, leading [partner] covering the whole region or market, it could be the wrong solution for us. […] The firm should be pretty much of same size and same type as our firm.

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In addition to the foreign partners’ fit in terms of size and product portfolio, many FFs emphasise the overall, intangible identity of the ideal foreign partner. In most cases, having another FF as the foreign partner facilitates cooperation in many ways. The nonfamily CEO of Mach E finds many positive qualities of foreign partners that are also FFs: The strategies of the value bases have to be similar so that the business works. If the other wants to sell fast and cheap and run away, our mission is not to be like that. We want long-term, contented customer relationships. […] There has to be similar mindset. If we compare FF and some corporation, the life is completely different. Corporation is about corporation life. Organisations work; it is not human centred. FFs are more easily attached to individuals, at least up to a certain size.

The nonfamily CEO of the Finnish subsidiary of Decor C highlights the accessibility of the FF partners, which stems from the family owners’ dedication to their FF: If you do [business with] a firm that is faceless in a way, having ownership from a venture capitalist or else, then even the top management has some certain working hours and channels you seek. In many FFs, at least in the smaller ones we have had as retailers, you basically reach them [the family owners and managers] at any time. […] They [family owners and managers] breathe it [the FF], they participate, it is their life. There the personal wealth and the firm’s wealth might cross. […] There is a big difference [between FFs and non-FFs].

While the foreign partner’s similar FF or familial status is appreciated, the foreign partner should, however, also be well integrated into the local market and culture. The long-time CEO of the Chinese subsidiary of Garment B, mentioned previously, embodies this kind of a partner with her connections to embassies and firms in China. The family owner-manager of Garment B states in general that they only hire local employees in their foreign markets: We have only local organisations; we have only South Koreans in South Korea and only Chinese in China. We have never had expatriates in these.

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[…] We have never tried to build anything with Finnish. […] These people there have to be able to network there and obviously know the cultures that they naturally know.

With respect to all of the common characteristics of a foreign partner or customer, the desired ones are openness and credibility, which are explicitly mentioned by most FFs. As highlighted in previous chapters, FFs seek and primarily have strong foreign network ties in which mutual trust is the cohesive force of a long-term and profitable business relationship. If one can trust the foreign partner and consider them as part of the extended family, the lack of experience can be compensated for or even leveraged, as mentioned by the nonfamily export manager of Decor A with respect to their Indian distributor, an FF itself: It [the partnership] started initially so that we actually had a good situation to choose from a couple [of potential partners] with whom we want to start bringing forth this [Indian] business. And then we ended up with this firm. One point, inter alia, was of course their set of values […] and how our business has started with the same tone. It was one of the most important criteria, of course in addition to other readiness. This is a relatively young firm; all the founders there are relatively young. We saw that there is potential […] And when we have done business, we have took a sauna bath and else. […] They have said many times that as we have now started to do this [business together], we are a bit like one family. We openly talk about prices together, and everything is very open.

3.6.3 The Family Firm Status as an Advantage for Marketing and Relationship Building As indicated previously, many FFs emphasise active communication and footwork for finding suitable network ties, partners, and customers in foreign markets. Activity levels per se do not differ significantly between NNMs and BNEs other than the fact NNMs focus their activity on close relationship building with a concentrated set of strong network ties, and BNEs focus their activity on expanding and managing the portfolio of weak–strong network ties broadly and globally.

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This narrow versus broad focus on creating foreign network ties might partially explain why BNEs in general are more willing and active in utilising trade fairs, internal dealer meetings, and the like for creating new and maintaining existing network ties. On the other hand, NNMs devote more time to meet their foreign partners home and away, call them personally, invite them to summer cottages or saunas, etc. As indicated previously, these physical environments such as trade fairs and dealer meetings can be particularly useful for FFs for conveying a communal sense of belonging in the ‘extended family’. These environments show existing and potential partners and customers the family face of the FF. For instance, the family manager of Energy B has witnessed the following: It [the FF status] always comes up and also the surname affects. For instance, in the last trade fairs, when the biggest existing customers were aware of our family business status, they say ‘hey, you are the son of the family CEO, where is your dad?’ kind of thing. So, in a way, the historical continuum is visible and relations there pretty well. It is easier to get to talk, thanks to this surname.

Accordingly, in addition to universal sales and marketing strategies and tactics for profitable internationalisation, FFs might possess a distinctive marketing factor that is often beneficial according to our case firms: the FF status and the virtues associated with the status. In the chapters discussing NNMs and BNEs, we slightly touched upon this and how BNEs convey the sense of belonging, trust, and long-term orientation across the networks of foreign representatives by invoking the FF status. Most case firms believe that the FF status has at least some value in international marketing and networking, although the significance may vary depending on the foreign partner or customer. The family manager of Compo B states the following on the question whether the FF status facilitates international networking: Yes and no. It, of course, has a big significance with those [partners] with which we have had long relationship and which have known the [founder] father of the brothers [managing now Compo B]. This is still

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the same family, face and you can be in contact if necessary. Then there are industrial FFs in Sweden, which appreciate that this is the manager and owns the firm. But then there are firms for which it does not really matter.

This indicates, again, how important the similar profile and identity of the foreign partner are for FFs. Particularly, another FF as a foreign partner is often desired and most case firms state that most of their foreign partners are actually similar FFs. The family CEO of Decor A points out the following: We tried to enter Russia for almost ten years and we had not found a partner there. But then we tried India for two years and we found there [a partner]. We just did a long-term agreements and it is a FF, which has worked there for over 60 years. There was immediately chemistry, values and else; it has started off very differently [than in Russia]. […] I think they all are FFs that are our representatives around the world. It is a strength […] this woman, partner in India, said very directly that they only do business with FFs.

References Alessandri, T. M., Cerrato, D., & Eddleston, K. A. (2018). The mixed gamble of internationalization in family and nonFFs: The moderating role of organizational slack. Global Strategy Journal, 8(1), 46–72. Banalieva, E. R., & Eddleston, K. A. (2011). Home-region focus and performance of family firms: The role of family vs non-family leaders. Journal of International Business Studies, 42, 1060–1072. Baronchelli, G., Bettinelli, C., Del Bosco, B., & Loane, S. (2016). The impact of family involvement on the investments of Italian small-medium enterprises in psychically distant countries. International Business Review, 25(4), 960–970. Bell, J., McNaughton, R., Young, S., & Crick, D. (2003). Towards an integrative model of small firm internationalisation. Journal of International Entrepreneurship, 1(4), 339–362.

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Berrone, P., Cruz, C., & Gomez-Mejia, L. R. (2012). Socioemotional wealth in family firms: Theoretical dimensions, assessment approaches, and agenda for future research. Family Business Review, 25(3), 258–279. Bird, M., & Zellweger, T. (2018). Relational embeddedness and firm growth: Comparing spousal and sibling entrepreneurs. Organization Science, 29(2), 264–283. Boers, B. (2016). Go east! How family businesses choose markets and entry modes when internationalising. International Journal of Globalisation and Small Business, 8(4), 333–354. Calabrò, A., Campopiano, G., Basco, R., & Pukall, T. (2017). Governance structure and internationalization of family-controlled firms: The mediating role of international entrepreneurial orientation. European Management Journal, 35(2), 238–248. Coleman, J. S. (1988). Social capital in the creation of human capital. American Journal of Sociology, 94, S95–S120. D’Angelo, A., Majocchi, A., & Buck, T. (2016). External managers, family ownership and the scope of SME internationalization. Journal of World Business, 51(4), 534–547. D’Angelo, A., Majocchi, A., Zucchella, A., & Buck, T. (2013). Geographical pathways for SME internationalization: Insights from an Italian sample. International Marketing Review, 30(2), 80–105. Gallo, M. A., & Pont, C. G. (1996). Important factors in family business internationalization. Family Business Review, 9(1), 45–59. Gomez-Mejia, L. R., Makri, M., & Kintana, M. L. (2010). Diversification decisions in family-controlled firms. Journal of Management Studies, 47(2), 223–252. Granovetter, M. S. (1973). The strength of weak ties. American Journal of Sociology, 78, 1360–1380. Håkanson, L., & Kappen, P. (2017). The ‘casino model’ of internationalization: An alternative Uppsala paradigm. Journal of International Business Studies, 48(9), 1103–1113. Hennart, J. F., Majocchi, A., & Forlani, E. (2019). The myth of the stay-athome family firm: How family-managed SMEs can overcome their internationalization limitations. Journal of International Business Studies, 50(5), 758–782. Johnson, M. D., & Selnes, F. (2004). Customer portfolio management: Toward a dynamic theory of exchange relationships. Journal of Marketing, 68(2), 1–17.

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Kano, L., & Verbeke, A. (2018). FF internationalization: Heritage assets and the impact of bifurcation bias. Global Strategy Journal, 8(1), 158–183. Kao, M. S., Kuo, A., & Chang, Y. C. (2013). How family control influences FDI entry mode choice. Journal of Management and Organization, 19(4), 367–385. Kontinen, T., & Ojala, A. (2012). Social capital in the international operations of family SMEs. Journal of Small Business and Enterprise Development, 19(1), 39–55. Lester, R. H., & Cannella, A. A., Jr. (2006). Interorganizational familiness: How FFs use interlocking directorates to build community-level social capital. Entrepreneurship Theory and Practice, 30(6), 755–775. Majocchi, A., D’Angelo, A., Forlani, E., & Buck, T. (2018). Bifurcation bias and exporting: Can foreign work experience be an answer? Insight from European family SMEs. Journal of World Business, 53(2), 237–247. Morgan, R. M., & Hunt, S. D. (1994). The commitment-trust theory of relationship marketing. Journal of Marketing, 58(3), 20–38. Nahapiet, J., & Ghoshal, S. (1998). Social capital, intellectual capital, and the organizational advantage. Academy of Management Review, 23(2), 242–266. Ray, S., Mondal, A., & Ramachandran, K. (2018). How does family involvement affect a firm’s internationalization? An investigation of Indian FFs. Global Strategy Journal, 8(1), 73–105. Singh, R. P. (2000). Entrepreneurial opportunity recognition through social networks. New York: Garland Publishing. Yang, X., Li, J., Stanley, L. J., Kellermanns, F. W., & Li, X. (2018). How family firm characteristics affect internationalization of Chinese family SMEs. Asia Pacific Journal of Management, 1–32. https://doi.org/10.1007/ s10490-018-9579-7. Yeoh, P. L. (2004). International learning: Antecedents and performance implications among newly internationalizing companies in an exporting context. International Marketing Review, 21(4/5), 511–535.

4 Conclusions: Implications of Family Firm Internationalisation from a Network Perspective

Abstract  In this chapter, we summarise the contents of this book, from main findings to implications. The findings do not only align with the earlier literature on FF internationalisation, but make international networking more pertinent as a significant motor for successful internationalisation. The key message is that both narrow maximisation and broad enabling of foreign network ties can yield successful internationalisation for FFs. In addition to industry and other contextual factors, the success in either case is based on how FFs leverage their internal capabilities, such as social capital and long-term orientation, but also externally complement their internal liabilities, such as lack of resources and competence, for the optimal international networking strategy and path. Finding the golden mean between economic and noneconomic (SEW) goals is not easy. However, tackling bifurcation bias and related dysfunctional effects is critical for the ability of FFs to expand overseas. Keywords  Narrow network maximiser · Broad network enabler Summary · Implications · Context

© The Author(s) 2020 T. Leppäaho and J. Metsola, Family Firm Internationalisation, https://doi.org/10.1007/978-3-030-28520-3_4

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4.1 Summary of the Book and the Findings 4.1.1 Internationalisation of Family Firms: Network Perspective This book discusses the phenomenon of FF internationalisation from a network perspective. FFs account for a significant number of firms worldwide and, although a consensus has not been reached how exactly, FFs have been proved to differ from firms with other ownership structures also in relation to internationalisation. Being that good network ties can compensate for the lack of other types of resources (such as financial and human resources), network ties are especially important when resource-scarce firms, such as FFs want to internationalise (Eberhard & Craig, 2013). It is thus relevant to look in-depth into how FFs identify and establish foreign network ties to foreign markets when internationalising. Internationalisation is risky and costly. FFs possess special risk perceptions through their SEW preservation tendencies—this may restrain their efforts to internationalise (Gomez‐Mejia, Makri, & Kintana, 2010). The emotional attachment, identification with the firm, and desire to maintain family control over generations may be significant barriers to extend business overseas and to be ‘exposed’ to external environments. Indeed, FFs have been found to be inward-looking, risk-averse, and having less networking and external relationships. This makes them reluctant to initiate or intensify internationalisation (Graves & Thomas, 2004; Scholes, Mustafa, & Chen, 2016). When forming foreign network ties, FFs tend to have just a few binding foreign network ties that they elaborate; however, this strategy could make them miss out on opportunities outside the immediate international network (Kontinen & Ojala, 2012). However, FFs, through their stewardship orientation and altruistic behaviour, can build strong and enduring network relationships with foreign partners and customers, who provide them with managerial and financial resources (Graves & Shan, 2014). International networking with other FFs may be fruitful for increasing the community-level social capital (Lester & Cannella, 2006). Higher SEW levels

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do not necessarily restrain successful internationalisation if the FFs are open to external ownership, having a nonfamily CEO, and utilising international networks, the combination of which complements the internal benefits associated with SEW (Kraus, Mensching, Calabro, Cheng, & Filser, 2016). FFs can be internationally successful if they focus on high-quality products in global niches, embrace the internally strong social capital in their foreign network ties (Hennart, Majocchi, & Forlani, 2019), and increase the human capital of the firms and the structured internationalisation planning and execution (Kano & Verbeke, 2018).

4.1.2 Family Firms Narrowly Maximise or Broadly Enable Their Foreign Network Ties to Build Successful Internationalisation Our empirical study was based on an in-depth investigation of 24 Finnish FFs through interview and secondary data to answer the following research questions: How do FFs build and maintain network ties to foreign markets? and How do FFs embrace their FF nature for successful international networking? We did not just present what FFs do, but why they engage in certain international networking strategies, thus unravelling the special FF features and heterogeneity within FFs in international networking. We divided our 24 case FFs into two main categories related to international networking strategies: narrow network maximisers (NNMs, n = 11) and broad network enablers (BNEs, n = 13). In a nutshell, NNMs were characterised by a low number of strong foreign network ties that were maintained with the focus on relationship management, i.e. with a focus on building network closures (NCs) and increasing relational embeddedness for long-term, ‘matrimonial’ network ties. Accordingly, NNMs aimed at having successful internationalisation through maximising the (limited) resources to increase social capital via few, strong, and good ties, such as long-time agents or subsidiaries. We further divided NNMs into regional and global NNMs, the former focusing on psychically close foreign markets and the latter focusing on psychically distant foreign markets.

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BNEs were characterised by the high number of weak–strong foreign network ties maintained with the focus on portfolio management. Thus, the large number of foreign network ties, such as agents and distributors, in both psychically close and distant countries, made BNEs focus their efforts on the most profitable ones, letting the weaker ones contribute to the overall global coverage of sales. Yet, concurrently, BNEs did not often ignore the importance of community-level social capital among the foreign network ties, strong or weak. Thus, they were observed to actively engage in meeting the foreign partners and customers at events such as trade fairs and partner meetings. Accordingly, BNEs aim to have successful internationalisation through enabling the foreign partners and customers to contribute to the FFs’ foreign sales with stronger of weaker ties, and enabling the FFs themselves to reach multiple foreign markets with various network ties.

Risk Aversion, Socioemotional Wealth, and Bifurcation Bias in International Networking Although there are significant differences in the scale and scope of international networking between NNMs and BNEs (and between regional and global NNMs), there exist some common factors that indicate the case firms’ FF status and resonate with past empirical evidence. In all the typologies, the internationalisation process has usually started from nearby and psychically close markets, often typical for FFs owed to risk aversion, resource efficiency, and SEW preservation (Cesinger, Bouncken, Fredrich, & Kraus, 2014; Gomez-Mejia et al., 2010). Regional NNMs may be a bit more risk-averse than global NNMs and BNEs in sticking with psychically close internationalisation; however, in all the types, the used entry modes and network ties mirror risk aversion and resource efficiency. The few network ties of global NNMs to psychically distant markets (such as China and South Korea) are often ties to subsidiaries, which at first sight could be considered risky high-commitment modes, but which actually reflect the FFs’ inclination to possess control over the operations far away. In our data, we found that global NNMs have a high level of SEW, which suggests that they want to preserve their SEW by having strong

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ties to subsidiaries overseas. The personal ties to the managers running the subsidiaries are generally long-term and trustworthy; the managers themselves feel like part of the extended family. It has been earlier studied that FFs may be unwilling to make high-commitment foreign direct investments (FDIs) (see Bhaumik, Driffield, & Pal, 2010), especially to psychically distant countries (see Baronchelli, Bettinelli, Del Bosco, & Loane, 2016). However, having another FF as a foreign partner (Sestu & Majocchi, 2018) and new generations and external managers in the FF (Pongelli, Caroli, & Cucculelli, 2016) facilitate engaging in high-commitment entry modes. These facilitating factors were present in the global NNMs Mach A and Garment B. BNEs engage in many foreign network ties and markets in their internationalisation over time, but with varying strengths and primarily low-commitment partnerships, such as agents and distributors. They ‘place more bets’ in their international networking similar to the ‘casino model’ of internationalisation (Håkanson & Kappen, 2017). However, with this broad portfolio of network ties, BNEs manage the risk of relying on just a few, strongly embedded ties that in the case of discontinuity would damage the businesses. We have described BNEs as usually having medium levels of SEW, indicating they do not just shoot with the shotgun everywhere with the hope of rapid growth, but do have concerns over their SEW. On the other hand, while they may feel strong emotional attachment to and identification with the FF, they acknowledge that they are firms like any other firm type and that global expansion is the lifeline for the survival of the firm—and for the survival of the firm as a precious FF. To not get blindfolded by family and heritage assets and affected by bifurcation bias, versus nonfamily and other functional assets, FFs should bring nonfamily and other functional assets to the FF to survive in the fiercely competitive international arena (Kano & Verbeke, 2018). In many case firms—mostly in BNEs, but also in NNMs—we found strategies suggested by Kano and Verbeke (2018) for minimising bifurcation bias. They suggested that FFs should, among others, be open to hire nonfamily management to increase cross-border operational meritocracy and provide international education to family members to increase their international competence. In many case firms,

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these open(-minded), rational, and functional steps had been taken to increase global competitiveness.

Family Firm Status Is Good for the Profile of a Foreign Partner, Marketing, and Relationship Building A network tie between organisations that share common interests may provide mutual benefits and encouragement for a long-term relationship (Johanson & Mattsson, 1988; Johanson & Vahlne, 2003). Besides the risk-averse nature and SEW preservation in different forms, another main FF-specific aspect arising from our study is the willingness to have other FFs as foreign partners. Many FFs in our data explicitly mention that cooperation works better with FF foreign partners, as there are similar identity, values, reachability, and long-term orientation that makes business with them both efficient and trustworthy. FF status reinforces and complements the other main characteristics desired in the foreign partner—namely, the existence of networks and activity to create new ones, competence and interest to the FFs’ products, similar size, understanding of local culture, and openness and credibility. Having other FFs as foreign partners has received evidence in the literature earlier (Fernandez & Nieto, 2005; Gallo & Pont, 1996; Mitter & Emprechtinger, 2016; Swinth & Vinton, 1993). The case firms with over 60% foreign sales to total sales (FSTS) on average indicate that networking with other FFs can be beneficial for successful internationalisation. Furthermore, several case firms point out that bringing up the FF status as a marketing and cohesive factor, built upon the aforementioned FF-specific virtues, is beneficial for forming and maintaining fruitful network ties. Trade fairs, partner meetings, and the like are good physical environments for both BNEs and NNMs to show their family face, generational continuity, and for other identifying FF-specific sources of trust and long-term orientation.

Adapting to the Industry and Other Contextual Factors The FFs in our data make a case for the arguments by Hennart et al. (2019), who stated how the long-term orientation and high internal

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social capital of FFs are suited for internationalising with high-quality and high-end products in global niches and doing business with demanding customers. We found that BNEs, which have FSTS over 20 percentage points higher than in NNMs, have relatively more high-end and niche products to offer. However, the study suggests that to choose between NNM or BNE, the best strategy is to conduct international networking, at least partially contingent upon the industry and other contextual factors. NNMs usually had low-end, bulk, or large-scale investment-type products, such as hardware, wood, and heating boilers, which may narrow down the market potential to nearby locations due to logistical costs and low margins. Moreover, to sell these products to foreign markets, they may require strong and long-term partnerships to ensure the continuous flow of trade for cost-efficiency or to ensure that sales and after sales of large-scale investment-type products are run by knowledgeable and committed professionals in the local markets. BNEs possess relatively more high-end and niche products, the market potential of which are not so limited to the domestic or nearby markets, like the products of NNMs. These products, such as design lamps, hydraulic machinery, and high-tech measuring equipment, may have a relatively more limited set of ideal business-to-consumer (B2C) and business-to-business (B2B) customers than for NNMs per se. This implies that internationalisation and a broad network of various partners worldwide is the way to increase such a number. To exaggerate slightly, quantity over quality applies to BNEs, while quality over quantity applies to NNMs. More generally, we must acknowledge that studying internationalisation should account for context (Cantwell, Dunning, & Lundan, 2010; Delios, 2017) and considering the FF heterogeneity in internationalisation (De Massis, Frattini, Majocchi, & Piscitello, 2018; Duran, Kostova, & Van Essen, 2017). The policies of governments (Duran et al., 2017), formal and informal institutions (Arregle, Duran, Hitt, & Van Essen, 2017), and FF prevalence in a country (Carney, Duran, Van Essen, & Shapiro, 2017) may affect the internationalisation efforts of FFs. International networking may not be contingent upon just the networking capabilities and product characteristics of the FFs, but be affected or pushed by the home country factors. Finland, the country

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of origin for all the case firms in the empirical part of this book, is a relatively small and open economy, within which internationalisation and network ties to foreign markets are crucial, if SMEs are to achieve business growth (Bell, 1995; Torkkeli, Kuivalainen, Saarenketo, & Puumalainen, 2016). Thus, the FFs in our data might be forced to go international and focus on international networking in varying degrees, due to the limited domestic market—especially for those BNEs with niche products. Firm survival may be dependent on global competitiveness, which may diminish the significance of trade-off between domestic concentration and global diversification as a way to preserve SEW (cf. Gomez-Mejia et al., 2010), since the FF might not exist in the future and consider SEW-related dimensions if it is not economically rational. However, while we acknowledge the country context, we argue that the findings apply broadly to FFs in other countries as well, given that the findings largely align with the earlier literature on FF internationalisation conducted in various country contexts. Additionally, the FFs in our empirical study were family-controlled firms and not family-influenced firms (Arregle, Naldi, Nordqvist, & Hitt, 2012; Sirmon, Arregle, Hitt, & Webb, 2008), which is worth mentioning. The high family ownership and involvement of FFs have been seen as being provided with a proper setting for the analysis of SEW of FFs (e.g. Berrone, Cruz, & Gomez-Mejia, 2012; Kotlar, Signori, De Massis, & Vismara, 2018). Thus, we have chosen to study family-controlled firms in particular, since we included the SEW analysis as a major component of the book and an antecedent for the international networking behaviour of FFs. Moreover, there has been disputable debate on the impact of the level of family ownership on internationalisation; some studies argue for the advantageous impact of high family control (see Chen, 2011; Marin, Hernández-Lara, Campa-Planas, & Sánchez-Rebull, 2017; Zahra, 2005), some for a medium family control (see Liang, Wang, & Cui, 2014; Mitter, Duller, Feldbauer-Durstmüller, & Kraus, 2014; Sciascia, Mazzola, Astrachan, & Pieper, 2012), and others for a low family control (see D’Angelo, Majocchi, & Buck, 2016; Sciascia, Mazzola, Astrachan, & Pieper, 2013). Our study shows that FFs with high family control can achieve

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successful internationalisation, but that the international networking paths and strategies to achieve this vary among the FFs. Furthermore, the SEW levels vary among the FFs despite similar levels of family control. Thus, we contribute to this debate with the in-depth look at family-controlled firms, their SEW levels, and international networking.

4.1.3 Implications for Managers and Researchers: Summarising the Success Factors in FF International Networking Although BNEs, overall, showed the higher FSTS and strategic focus on internationalisation, we can still summarise that both NNMs and BNEs can be successful in international networking and internationalisation. Despite various differences, there are some key factors for succeeding in either of these two international networking strategies. In summary, these factors, useful for current and future managers and members of FFs, are the following: – Adjusting the resources and risk perception when engaging in foreign network ties • Low-commitment entry modes (e.g. agents, distributors) are cost-efficient but also high-commitment entry modes (e.g. wholly owned subsidiaries, joint ventures) can work if there is relational embeddedness (mutual trust, identification, and obligations between the partners) • Choosing suitable partners becomes essential to avoid failures (e.g. existing networks, understanding of local culture, industry experience and product knowledge, similar size and product portfolio, credibility, and openness) • SEW dimensions (family control, emotional attachment to the FF, identification, binding social ties, and generational continuity) provide with ‘higher-order’ meanings for the business and benefits related to stewardship and long-term orientation, but they should not prevent rational decisions on internationalising

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• It is not just about networking capabilities but also about global market potential that determine whether or not engage in (strong or weak) foreign network ties. – Increasing the social and human capital in the network ties internally and externally • International work experience and education for family members but also meaningful and internationally oriented work tasks internally in the FF • Nonfamily management and even ownership to bring international competence • Internationally active family and nonfamily managers bring about networks of networks • The strong experience and contacts of older FF generations should be complemented with the strong knowledge and networking capabilities of newer FF generations in using modern digital tools and business skills • SEW preservation tendencies (e.g. maintaining family control at all costs) is not good for the FF in the long term, and meritocracy should be the priority when appointing managers and trying to compete in challenging foreign markets. – Partnering with other similar FFs and using FF status as a marketing and cohesion factor in international networking • FF status reflects credibility and long-term orientation • Partnerships between FFs work due to similar identity and goal orientations • The ability to use network of networks might increase. – Actively meeting foreign partners and customers physically in domestic and foreign markets • Community-level social capital increases • The likelihood of commercial opportunities and serendipities increases • FF status can be leveraged best by physically showing that.

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Accordingly, appreciating the past, being receptive to the present, and being agile for the future may be key for the successful international networking of FFs. The founders and early family generations have built the basis for the often long-term network ties to foreign markets with their active and fearless footwork and devotion to developing the business and network ties. The identifying family name associated with high-quality products and continuous improvement has been something that the following generations can proudly carry with them, putting additional emphasis on global expansion and managing the network ties and bringing modern tools and nonfamily expertise to enhance international networking. Continuing as an internationally competitive FF has, in some cases, led to situations where the new generations have had to give up part of or the entire ownership to external firms. These situations epitomise the difficult situations where economic and noneconomic (SEW) goals need to be balanced, the mixed gamble of which (Alessandri, Cerrato, & Eddleston, 2018) is not always easy. FF status can be an advantage as well as a disadvantage. FFs have to think continuously of what strings to pull: FF-specific factors or business factors independent on FF status, in international networking, internationalisation, and business in general. In any case, the findings of the book reveal that the success of FFs’ international networking lies in internal and external network ties. Our findings are relevant for both FFs and SMEs in general. The findings are derived from the pool of in-depth case data on 24 FFs (SMEs), thus adding to earlier literature on FF internationalisation and studies conducted in various country contexts, in alignment with the latest theoretical cornerstones in the field, such as the global niche business models for internationally competitive FFs (Hennart et al., 2019), bifurcation bias (Kano & Verbeke, 2018), and the mixed gamble of SEW and economic goals (Alessandri et al., 2018). The findings and the book overall encourage FF scholars worldwide to study FFs and their international networking in-depth, possibly unravelling the detailed nuances for FFs of different size, ownership and management structure, and what the generation have in regard to international networking. Future studies in different internal and external, institutional and social, and developed and developing country contexts should increase our

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understanding of the FF internationalisation and international networking. With the NNM-BNE dichotomy, we have presented how FFs form network ties to psychically close or physically distant countries with different scale, scope, and pace. Future studies can build on this and investigate whether the international networking paths and structures as well as the strengths of network ties differ regarding obtained data. The book, its theory, and findings serve as a complementary teaching and reading material for executive education and master’s level courses in international business and family business. Thus, the book equips students with expertise on internationalising and utilising international networks on the globally largest cohort of firms, i.e. FFs.

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Index

A

ability and willingness perspective 6, 12 agency theory 6, 7, 12

case study 48 context 2, 7, 9, 11, 18, 21, 26, 40, 89, 127, 128 F

B

Bell et al. (2003) 17, 18, 25, 81, 82 bifurcation bias 6, 10–12, 25, 26, 102, 111, 125, 131 broad network enabler (BNE) 47, 74, 75, 78, 83, 93, 94, 99, 102, 127, 132 C

case firms 2, 13, 41, 42, 48, 75, 77, 82, 88, 92, 99, 104, 105, 107, 112, 117, 118, 124–126, 128

family control 3, 6, 9, 10, 13, 48, 53, 54, 58, 59, 63–65, 70, 111, 122, 128–130 family-controlled firm 4, 12, 13, 41, 128, 129 family firm (FF) 2–8, 10–13, 16, 21, 23, 24, 40, 45, 49, 51–63, 65, 66, 68, 70, 74, 79, 80, 82, 85, 91, 99, 100, 102, 105, 107, 108, 110–112, 114–118, 122–132 family-influenced firm 3, 12, 128

© The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Switzerland AG 2020 T. Leppäaho and J. Metsola, Family Firm Internationalisation, https://doi.org/10.1007/978-3-030-28520-3

137

138     Index

involvement 8, 13, 25, 68 ownership 3, 5, 6, 22, 25, 42, 110, 128 status 57, 99, 111, 117, 126 for marketing 5, 116 for relationship building 116, 126 foreign partner agent 57, 77, 78, 94, 97, 98, 100, 112, 124 choosing 112, 116 distributor 57, 66, 77, 78, 82, 94, 112, 116, 124, 125 wholly owned subsidiary 16, 77, 97, 129 foreign sales to total sales (FSTS) 41, 42, 49, 52, 54, 57–61, 63, 65, 69, 70, 75, 76, 89, 94, 96, 101, 103, 104, 126, 127, 129

‘casino’ model 77 international new venture (INV) 17 process 14–16, 18, 24, 26, 74, 76, 82, 83, 97, 103, 124 Uppsala model 15, 16, 18 international networking path 5, 26, 47, 82–84, 129, 132 strategy 5, 26, 47, 74, 76–78, 83, 112, 123, 127, 129 success factors 5, 14, 26, 101, 129 typology 5, 26, 47, 74 M

methodology 4, 26 data analysis 46–48 data collection 45, 46 N

G

Gersick et al. (1997) 5, 6, 8 global niche business model 23, 131 H

human capital 19, 25, 123, 130 I

implications 5 internationalisation born-again global (BAG) 18, 19, 25, 81, 82 born-global (BG) 17, 18, 25, 82, 83

narrow network maximiser (NNM) 47, 74, 75, 78, 83, 84, 86, 92, 96, 101, 104, 123, 127, 132 global 74, 75, 79–83, 87, 88, 91, 123–125 regional 74–76, 80–82, 84, 86, 87, 91, 96, 124 nonfamily 3, 10, 11, 13, 24, 25, 50–57, 59–64, 66, 69, 79, 86, 99, 103–105 competence/expertise 64, 67, 79, 102, 105, 108, 114, 130, 131 manager/management 25, 42, 53, 60, 62, 65, 68, 69, 91, 98, 99, 102–105, 110, 116, 125, 130

Index     139 P

portfolio management 75, 78, 83, 94–96, 99, 124 psychic distance 15 psychically-close 123, 124, 132 psychically-distant 123–125 R

relationship commitment management 75, 77, 83, 91, 94 resource-based view of the firm (RBV) 6, 7, 14 family firms (FF) 6, 7, 14 internationalisation 14 S

small- and medium-sized enterprise (SME) 16, 17, 101, 104 social capital community-level social capital 10, 24, 75, 78, 99, 104, 122, 124, 130 network tie 15, 18–20, 22–24, 74–76, 99, 104, 105, 122–124

network closure (NC) 20, 75, 77, 88, 123 strong 7, 10, 20–23, 74–76, 78, 80–82, 87, 88, 91, 92, 95, 99, 104, 105, 116, 123, 124, 130 structural hole (SH) 20, 99 weak 20, 74, 75, 83, 124, 130 relational embeddedness 24, 75, 99, 107, 123 socioemotional wealth (SEW) binding social ties 3, 9, 10, 48, 111, 129 emotional attachment 3, 9, 48, 122, 125, 129 family control 3, 6, 9, 13, 48, 111, 128–130 high SEW 24, 49, 65, 79, 80 identification 9, 10, 48, 79, 122, 125, 129 low SEW 24, 48, 80 medium SEW 49, 53 mixed gamble 9, 12, 13, 111, 131 renewal of family bonds through dynastic succession 3 stewardship theory 6, 7, 12