Family firm internationalization: Heritage assets and the impact of bifurcation bias

• Author: Liena Kano,Alain Verbeke
• Date: 01 February 2018
• Published date: 01 February 2018
• DOI: http://doi.org/10.1002/gsj.1186

SPECIAL ISSUE ARTICLE

Family firm internationalization: Heritage assets

and the impact of bifurcation bias

Liena Kano

1

| Alain Verbeke

2,3,4†

1

Strategy and International Business, Haskayne

School of Business, University of Calgary,

Calgary, Canada

2

International Business Strategy, McCaig Chair in

Management, Haskayne School of Business,

University of Calgary, Calgary, Canada

3

Solvay Business School, Vrije Universiteit

Brussel (VUB), Brussels, Belgium

4

Henley Business School, University of Reading,

U.K.

Correspondence

Liena Kano, Haskayne School of Business,

University of Calgary, Scurfield Hall 418, 2500

University Drive N.W., Calgary, Alberta T2N

1N4, Canada.

Email: liena.kano@haskayne.ucalgary.ca

Funding information

Social Sciences and Humanities Research Council

of Canada

Research Summary: We develop a new conceptual

framework to uncover governance-related determinants of

family firms’internationalization, building upon internali-

zation theory. We assess how family firm governance fea-

tures determine internationalization patterns on two key

dimensions: location choice and operating mode. We focus

on family governance characteristics that might drive sub-

optimal internationalization patterns and on removing such

suboptimality. We conclude that bifurcation bias, defined

as the de facto differential treatment of family or heritage

assets versus nonfamily assets, represents a critical family

firm-specific barrier to achieving efficiency in international

operations. In the short run, the key difference in interna-

tional governance is between bifurcation-biased family

MNEs and all other types of MNEs. In the longer run, inef-

ficient, bifurcation-biased decision making will make place

for comparatively more efficient governance.

Managerial Summary: Family firms are susceptible to

bifurcation bias—a default preferential treatment of fam-

ily members and resource bundles that hold positive emo-

tional meaning to the family, that is, heritage assets.

Such preferential treatment contrasts with that afforded to

professional, nonfamily managers and other resources,

with which the founding family does not entertain a posi-

tive emotional connection. If left unremedied, bifurcation

bias will lead to poor decisions in family-owned multina-

tionals that undertake international expansion, in terms of

the choices of which markets to enter and how to enter

these. These types of dysfunctional decisions will lead to

a decline in competitiveness as compared to nonfamily

multinationals. Family firms should, therefore, identify

†

And Inaugural Alan M. Rugman Memorial Fellow, Henley Business School, University of Reading, United Kingdom

Received: 1 February 2016 Revised: 16 December 2016 Accepted: 5 January 2017

DOI: 10.1002/gsj.1186

Copyright © 2017 Strategic Management Society

158 wileyonlinelibrary.com/journal/gsj Global Strategy Journal. 2018;8:158–183.

and actively prevent bifurcation bias by implementing the

specific safeguarding strategies suggested in this study.

KEYWORDS

bifurcation bias, family firm, heritage assets,

internalization theory, international governance,

location choice, operating mode

1|INTRODUCTION

Much empirical research on firm internationalization has focused either on publicly listed companies

with dispersed ownership and control or on international new ventures run by entrepreneurs. In con-

trast, family firm internationalization has attracted comparatively little attention, perhaps with the

exception of business groups from emerging economies. For example, from 1991 to 2008, only

17 studies analyzing internationalization of family firms were published in core journals in family

business and entrepreneurship (Kontinen & Ojala, 2010), which constitutes less than 1% of the con-

tent published in these journals.

The extant research on family firms, conducted mainly from agency and socioemotional wealth

(SEW) perspectives, has focused predominantly on determining whether family firms are more or

less internationalized than their nonfamily counterparts (Banalieva & Eddleston, 2011). This past

work can be broadly divided into two research streams (Arregle, Duran, Hitt, & Van Essen, 2017):

studies exploring family firms’reluctance to internationalize (Claver, Rienda, & Quer, 2009;

Gomez-Mejia, Makri, & Larraza-Kintana, 2010) and studies emphasizing features of family gover-

nance that facilitate internationalization (Gallo & Pont, 1996; Miller, Le Breton-Miller, & Scholnick,

2008; Nordqvist, 2005). Given this dichotomy in conceptual starting points, it is not surprising that

the overall empirical results of these studies are ambiguous. For example, several scholars

(e.g., Fernandez & Nieto, 2006; Gomez-Mejia et al., 2010; Graves & Thomas, 2006) have shown

that the family firms in their samples were less internationalized than nonfamily ones. Others

(Hennart & Majocchi, 2013; Zahra, 2003) have reached the opposite conclusion. To further compli-

cate the matter, some studies found no substantive difference between internationalization levels of

family versus nonfamily firms (Cerrato & Piva, 2012; Pinho, 2007), and other ones observed a

nonlinear relationship between family ownership and internationalization (Sciascia, Mazzola,

Astrachan, & Pieper, 2012).

We argue that the issue of whether or not family firms in general are more or less internationa-

lized than nonfamily ones is an empirical and conceptual non-starter. Empirically, Arregle et al.’s

(2017, p. 823) large-scale meta-analysis has convincingly demonstrated that “the association

between a firm’s ownership (i.e., family vs. nonfamily) and internationalization is null.”Differences

in how to operationalize both family firm governance and level of internationalization possibly

account for some of the discrepancies in the outcomes of past family firm internationalization

research. However, a more substantive reason for the lack of consensus, as suggested in a number

of recent studies (Arregle et al., 2017; Calabrò, Torchia, Pukall, & Mussolino, 2013; Pukall &

Calabrò, 2014; Sciascia et al., 2012; Sciascia, Mazzola, Astrachan, & Pieper, 2013), could be an

omitted variable bias (Bennedsen & Foss, 2015) or, specifically, a failure to account for the vast

KANO AND VERBEKE 159