1 Introduction
We examine how Emerging Market Family Business Groups (EFBGs) utilize family managers during the process of internationalization. EFBGs are defined as a set of legally independent affiliations found in emerging markets that are tightly interconnected with each other through various forms of family ownership. While family ownership tends to be overlooked in the U.S. and U.K., it is quite common in other parts of the world, including many emerging economies (Edwards et al.
2019; Hernandez and Guillén
2018; Khanna and Rivkin
2001,
2006; La Porta et al.
1999; Mukherjee et al.
2019; Piana et al.
2018; Pihkala et al.
2019; Rosa et al.
2019). EFBGs tend to put a stronger emphasis on the promotion of family values and family wealth maximization across their international network of subsidiaries (Arregle et al.
2007; Carney and Gedajlovic
2002; Gómez-Mejía et al.
2007; Peng and Jiang
2010; Steier
2009; Young et al.
2008). This often requires EFBGs to concentrate decision-making activities and management among family members (Carney
1998; Daspit et al.
2018; Deephouse and Jaskiewicz
2013; Pihkala et al.
2019). Therefore, family managers enjoy direct access to decision making through their regular involvement in management (Sirmon and Hitt
2003). In emerging economies where market-supporting institutions, for instance, capital markets, tend to be incomplete and ever-changing (North
1990; Peng
2003), using family members to manage diversification can be particularly valuable for EFBGs to deal with uncertainty (Khanna and Rivkin
2001; Khanna and Yafeh
2007). There is strong trust-bond between members of the family (Zellweger et al.
2019). This type of particularistic relationship is characterized by mutual obligation (Luo and Chung
2005), which can facilitate rapid information and knowledge exchanges to achieve immediate decision-making progress (Peng et al.
2017; Zellweger et al.
2019). As EFBGs move forward in internationalization and establish subsidiaries that are internationally dispersed (Guillén
2000), family managers can play an even stronger role and function as a critical resource in the coordination and management of businesses.
Although family managers as a resource can be valuable, with characteristics difficult to imitate, and relatively easy to be organized, they are unfortunately also extremely limited in both scale and scope since there are only a few family members available to be involved across the EFBGs. For example, Evergreen Group is a large Taiwanese family business group that consists of 18 affiliated businesses that span marine shipping and logistics, airlines, and hotel industries. Evergreen Marine Corp. alone has approximately 40 direct and indirect invested companies around the world (Evergreen Marine Corp
2019). It is difficult to imagine that EFBGs can fill all of their senior managerial positions with immediate family members alone.
Therefore, it is a strategic challenge for EFBGs to manage where to assign family members internationally. Conversely, most studies related to family management and family member involvement have focused on the corporate level but have ignored the pivotal role it plays during internationalization (Bannò and Sgobbi
2016; Tabor et al.
2018). Our research objective is to address this gap by examining the practical utilization of family managers established in foreign subsidiaries. More specifically, we ask the research question, “What is the relationship between institutional distance and the likelihood that the heads of foreign subsidiaries are family managers?” We ground our framework of EFBGs at the intersection between a resource-based view (RBV) of the firm (Habbershon and Williams
1999; Sirmon and Hitt
2003) and institutional theory (Khanna and Palepu
2000; Khanna and Rivkin
2001,
2006; Kostova
1999; Kostova and Zaheer
1999; Scott
1995). Family managers and their family ties are conceptualized as resources specific to EFBGs (Barney
1986,
1991; Luo
2000; Tan and Mahoney
2003; Trevino and Grosse
2002), which can be utilized by EFBGs in foreign subsidiaries to enhance control and coordination and to reduce the uncertainty caused by differences in regulative, normative and cognitive distances between home and host countries (Leitch et al.
2013; Platje
2008; Zellweger et al.
2019). Moreover, based on insights provided by previous regionalization research (Edwards et al.
2019; Verbeke and Kano
2016), we expect that the use of family managers in foreign subsidiaries is not always a straightforward procedure; and, it can change when EFBGs cross regional borders and become more international (Vandekerkhof et al.
2015). This can be particularly intriguing as institutional theory, in general, assumes the dominance of external institutional forces (Peng
2003; Scott
1995), and it does not take into consideration how organizational variation may influence the degree of conformity among such subsidiaries (Fortwengel
2017). As such, we further investigate and compare whether the tendency of using family managers in subsidiaries is consistent among those EFBGs that focus their activities within or outside of the home region. Because of evident variations in and among EFBGs’ regional orientations, we expect that the need to use family managers may also differ to some extent.
Utilizing family managers to deal with the uncertainty experienced during the process of internationalization raises important theoretical considerations that cannot be easily accommodated by existing frameworks in family business and international business literature. For example, agency theory has been used extensively in the field of family business to identify governance issues such as principal-principal conflicts in EFBGs (Sauerwald and Peng
2013). But, the theoretical notion of internal focus makes it inadequate in explaining staffing decisions under conditions of cross-country, institutional differences and the uncertainties experienced (Vandekerkhof et al.
2015). Furthermore, a recent focus has been placed upon a family member being thought of as the holder of a relational contract (Peng and Jiang
2010), one who plays a role to maximize the socio-emotional wealth of the family business (Gómez-Mejía et al.
2007,
2011). The internationalization patterns of family businesses, according to this view, will be more cautious in nature as compared to their non-family peers due to their need for control and an intrinsic risk-averse attitude (Berrone et al.
2012; Del Bosco and Bettinelli
2020; Hennart et al.
2017). Yet, the empirical results are rather inconclusive (Arregle et al.
2017; Hernández et al.
2018; Hsueh and Gomez-Solorzano
2019), and this has led to a call for greater contextual understanding (Hennart et al.
2017; Peng et al.
2018). The international business literature, on the other hand, focusses on how the transferability of firm-specific advantages from the headquarters to foreign subsidiaries will be affected by the institutional differences occurring between home and host countries (Rugman et al.
2011; Verbeke and Kano
2016). Despite its emphasis and discussion relevant to external contingencies, scholars often brush aside the potential variations on strategic decision-making due to firm heterogeneity (Rugman and Verbeke
2008). Our current study aims to join the theoretical discussions stated above, and to a further extent, consider family relational-advantage arguments more closely (Chrisman et al.
2009).
More specifically, our study on EFBGs and their use of family managers in foreign subsidiaries makes the following contributions. Firstly, we extend the discussion of family ownership and how family control is maintained in the management of the foreign subsidiaries when expanding internationally (Gómez-Mejía et al.
2007,
2011). We focus our discussions on the role of family managers in foreign subsidiaries and draw on RBV and institutional theory to argue that these family managers are valuable resources specific to EFBGs when used to mitigate the uncertainty perceived from operating in countries with larger institutional differences. We empirically test how institutional contingencies affect family-manager, subsidiary-staffing decisions, and our findings show the need to maintain family control is indeed prevalent. Additionally, our findings further show the heterogeneity of EFBGs along the regional dimension, and how this phenomenon will impact their strategic management. For EFBGs that place a stronger emphasis on markets in their home region, the family managers are strategically needed at the headquarters; as a result, the institutional uncertainty of foreign subsidiary operations is inevitably overlooked. This last result provides evidence of the deviating behavior of standard practices under the host institution’s aegis (Fortwengel
2017), and it further supports our argument that family managers are an important EFBG-specific resource.
Secondly, we also contribute to the research on internationalization processes in showing how EFBGs are key to the development of coordination and control of cross-border business activities (Vahlne and Johanson
2017). Previous literature on international expatriate and staffing decision-making has either ignored EFBGs (Ando and Paik
2013; Gaur et al.
2007), or overlooked the increasing importance of subsidiaries (Rugman et al.
2011). Furthermore, family managers are a unique expatriate staffing resource that is uniquely available to family-owned business groups, with this crucial omission hindering our understanding of the field (Zellweger
2017). Moreover, the use of family managers is not the same for EFBGs placing stronger emphasis on markets located in their home or non-home regions. This last point indicates a real insight into the differences between family managers and professional managers.
The remainder of this article is structured as follows. In the next section, existing studies on the impact of host-country institutions related to a business group’s behavior during internationalization are reviewed and hypotheses are developed. We then explain our method, data source, variables, and statistical analysis. Section
4 presents the results of our analysis and hypotheses testing, while a discussion of these is made in the section following. Lastly, we conclude this paper with a brief summary of findings, limitations and potential for future research.
4 Results
Table
4 shows the descriptive statistics and correlations between variables used in this study. Approximately 15% of the foreign subsidiaries in our sample have family members as their head. Additionally, nearly half of the EFBGs still have the founder serving as the CEO or in a chair position in the FBGs, and on average, family members take up 78% of the inner circle.
Table 4
Correlation matrix
1. Family managers | 0.15 | 0.10 | | | | | | | | | | | | | | | |
2. Regulatory distance | 0.60 | 0.24 | 0.05** | | | | | | | | | | | | | | |
3. Normative distance | 0.52 | 0.20 | − 0.01** | 0.15** | | | | | | | | | | | | | |
4. Cognitive distance | 0.56 | 0.22 | 0.01** | 0.23** | 0.44** | | | | | | | | | | | | |
5. Home-region oriented groups | 0.46 | 0.40 | − 0.02** | 0.02** | 0.08** | 0.05** | | | | | | | | | | | |
6. Group’s asset | 13.06 | 12.66 | − 0.20** | − 0.06** | − 0.03** | − 0.04** | − 0.25** | | | | | | | | | | |
7. Group age | 40.28 | 12.51 | 0.01** | − 0.04** | 0.02** | 0.05** | 0.19** | 0.05** | | | | | | | | | |
8. Founder leadership | 0.51 | 0.50 | 0.02** | − 0.07** | 0.08** | − 0.01** | 0.05** | 0.28** | − 0.08** | | | | | | | | |
9. Family member in inner circle | 0.78 | 0.27 | 0.18** | 0.07** | − 0.05** | − 0.05** | − 0.07** | − 0.05** | 0.04** | − 0.26** | | | | | | | |
10. International diversification | 0.62 | 0.26 | 0.06** | 0.01** | − 0.02** | 0.01 | − 0.53** | − 0.07** | − 0.14** | − 0.09** | 0.01 | | | | | | |
11. Network size | 1999.32 | 1311.58 | − 0.12** | − 0.14** | − 0.04** | − 0.01 | − 0.18** | 0.28** | − 0.05** | − 0.26** | 0.04** | 0.15** | | | | | |
12. Subs country similarity | 0.21 | 0.20 | 0.07** | 0.16** | 0.27** | 0.26** | 0.03** | 0.03** | 0.03** | 0.03** | − 0.01 | − 0.11** | 0.01 | | | | |
13. Subs industry similarity | 0.31 | 0.26 | 0.12** | 0.09** | 0.05** | 0.06** | − 0.03** | − 0.01 | − 0.06** | − 0.01** | − 0.01 | 0.01* | − 0.02** | 0.28** | | | |
14. Subs age similarity | 1.81 | 1.16 | − 0.05** | 0.01 | − 0.04** | 0.01 | − 0.04** | 0.14** | 0.07** | 0.07** | − 0.08** | 0.01 | − 0.01** | − 0.11** | − 0.04** | | |
15. Subs asset similarity | 0.03 | 0.03 | 0.05** | − 0.02** | − 0.01** | − 0.01** | − 0.08** | 0.15** | − 0.03** | 0.14** | − 0.01** | − 0.06** | − 0.05** | − 0.01** | 0.04** | 0.16** | |
16. Host GDP similarity | 31.67 | 30.27 | − 0.04** | − 0.17** | − 0.24** | − 0.19** | − 0.12** | 0.05** | − 0.06** | − 0.01 | 0.01 | 0.09** | 0.02** | − 0.50** | − 0.11** | 0.19** | 0.10** |
Table
5 presents the results of our five ML models (ML-1 to ML-3), with
Family Manager as the dependent variable and
Regulative, Normative and
Cognitive Institutional Distance as independent variables. Model ML-1 shows the influence of all three institutional distance variables on appointing a family member as the head of subsidiaries in all EFBGs. ML-2 and ML-3 show the effects in the home region and non-home region-oriented EFBGs respectively. Wald chi-square values are found to be significant for all models, and thus, the model-of-fitness and the model setting are reasonably well satisfied. We also test the VIF of all three independent variables (regulative, normative and cognitive institutional distances), and all the VIF are less than 2 in all of the models. As such, there is no potential concern for collinearity coming from the models.
Table 5
Multilevel mixed-effects linear model (logit model)
Sample | Total EFBGs sample | Home-region-oriented EFBGs | Non-home-region-oriented EFBGs |
Constant | 1.62 (1.64) | 0.55 (1.25) | − 0.83 (1.69) | − 1.68 (1.71) | 18.83 (2.76)** | 15.99 (2.74)** |
Independent Vs.-Subsidiary level |
Cognitive distance | | 0.10 (0.05)* | | 0.08 (0.06) | | 0.34 (0.11)** |
Regulatory distance | | 0.60 (0.05)** | | 0.39 (0.07)** | | 0.80 (0.07)** |
Normative distance | | − 0.65 (0.06)** | | − 0.62 (0.09)** | | − 0.53 (0.08)** |
Control Vs.-Group level |
Group age | − 0.01 (0.01)** | − 0.01 (0.01)** | 0.01 (0.01) | 0.01 (0.01) | − 0.10 (0.01)** | − 0.08 (0.02)** |
Group asset | − 0.26 (0.06)** | − 0.20 (0.06)** | − 0.17 (0.08)* | − 0.12 (0.08) | − 0.95 (0.13)** | − 0.85 (0.13)** |
Founder leadership | 0.99 (0.53)+ | 1.01 (0.54)+ | 0.41 (0.58) | 0.42 (0.58) | 1.46 (0.96) | 1.46 (0.93)+ |
Family member in inner circle | 0.76 (0.10)** | 0.63 (0.11)** | 0.94 (0.13)** | 0.92 (0.13)** | 0.28 (0.24) | 0.30 (0.24) |
International diversification | 0.22 (0.07)** | 0.20 (0.08)** | 0.70 (0.11)** | 0.65 (0.10)** | − 0.33 (0.16)* | − 0.45 (0.16)** |
Network size | − 0.01 (0.01)* | 0.01 (0.01)* | − 0.01 (0.01)** | − 0.01 (0.01)** | − 0.01 (0.01)** | − 0.01 (0.01)** |
Control Vs.-Subsidiary level |
Subsidiaries country similarity | 0.33 (0.02)** | 0.36 (0.03)** | 0.41 (0.04)** | 0.45 (0.04)** | 0.29 (0.03)** | 0.08 (0.02)** |
Subsidiaries industry similarity | 0.77 (0.02)** | 0.76 (0.02)** | 0.65 (0.03)** | 0.64 (0.03)** | 0.86 (0.03)** | 0.85 (0.03)** |
Subsidiaries age similarity | 0.05 (0.01)** | 0.05 (0.01)** | 0.14 (0.02)** | 0.13 (0.02)** | 0.09 (0.02)** | 0.08 (0.03)** |
Subsidiaries asset similarity | 0.01 (0.01)** | 0.01 (0.01)** | 0.01 (0.01)** | 0.01 (0.01)* | 0.01 (0.01)** | 0.01 (0.01)** |
Host GDP similarity | 0.01 (0.01) | 0.01 (0.00) | − 0.01 (0.01)* | − 0.01 (0.01)* | 0.01 (0.01) | 0.01 (0.01)* |
Number of subsidiaries (in pair observed) | 103,596 | 103,596 | 47,939 | 47,939 | 55,657 | 55,657 |
Number of family business groups | 49 | 49 | 39 | 39 | 29 | 29 |
Wald Chi2 | 2156.67** | 2389.04** | 842.93** | 910.14** | 1584.80** | 1755.59** |
Log likelihood | − 32,816.982 | − 32,679.618 | − 14,231.908 | − 14,193.288 | − 18,322.618 | − 18,223.6 |
The results of the hypotheses tests are presented in Table
5. The ML-1 model shows support for hypotheses 1a, and 1b, but not 1c. Regulative and cognitive institutional distance both have a positive and significant influence on the likelihood of having a family member as subsidiary head. However, a negative and significant influence from normative institutional distance can also be observed from the results.
To test hypothesis 2, we run the analysis on ML-2 and ML-3. The results indicate that the patterns for regulative and normative institutional distance are the same for both home-region and non-home-region-oriented EFBGs. Yet, the results show the effect of institutional distance on FEBGs does not have a home-region orientation that is much stronger than in the case of home-region-oriented EFBGs. Moreover, for cognitive-institutional distance, only EFBGs that focus on non-home-region show a significant association. Moreover, one-way ANOVA tests indicate that the differences between these two groups of EFBGs are significant. Therefore, hypothesis 2 is also supported. In other words, EFBGs with focus outside the home region, in contrast to home-region-oriented EFBGs, are more likely to use family managers in foreign subsidiaries located in host countries at a larger institutional distance.
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