INTERNATIONALISATION ON INDIAN FAMILY FIRMS

Abstract

In India, the history of family businesses dates back to 1920s and 30s. India predominantly has family run businesses since every state and region in India has family business owned communities (Dewan, 2021). Further, globally, India stands at the third position in terms of family-owned businesses, only after China and the US (Credit Suisse Research Institute, 2018). Despite the significant contribution of Indian family firms to the nation’s GDP, there is dearth of literature that explores and analyses the impact of factors that help in explaining the internationalisation of Indian family firms. Although, there are a few research articles on Internationalisation of Indian family firms, but these articles have adopted a narrow approach wherein, either the focus was solely on family-related factors (e.g., Ray et al., 2018) or solely on business-related factors (e.g., Singh & Kota, 2017). Thus, the present thesis addresses this gap by undertaking a comprehensive analysis of the factors affecting the internationalisation of Indian family firms. In order to fill this gap, the study employs mixed methodology. Since internationalisation of Indian family firms is an under researched area, there is no adequate literature or theory explaining the internationalisation of Indian family firms. Consequently, at the first Stage, qualitative approach was employed to explore the factors affecting the internationalisation of Indian family firms through in-depth interviews of directors/managers of Indian family firms. The interview analyses identified various peculiar family characteristics, business group related factors, and organisational factors in explaining the family firms’ degree of internationalisation as well as their foreign market entry mode strategies. The results of the interview analysis revealed that these factors behave differently in family SMEs in comparison to large family firms. It was observed that peculiar family characteristics such as family control, family bonds, emotions, relationships, etc. play a greater role in family SMEs. This is because, family SMEs are characterised with greater involvement of family members in firms’ decision making process, hence these factors hold greater predominance in family SMEs. While in large family firms, beyond a particular juncture, it becomes difficult for family members to manage the operations of the firm. Hence, they tend to employ non-family members from outside to manage the firm’s operations. Consequently, they are characterised with a lower degree of “familiness” wherein peculiar family characteristics become less significant and other firm related factors start playing a greater role. Finally, at the second stage, quantitative approach was employed to analyse the impact of these factors (identified in Stage 1) on Indian family firms’ degree of internationalisation as well as their foreign market entry mode strategies through regression analysis. Another novelty of the study lies in employing mixed methods in the data collection process wherein certain variables were measured through quantitative method while others were measured through qualitative method. The data for certain variables – family ownership, age of the family business group, business group affiliation, etc. were readily available in the Prowess database, hence quantitative method was adopted to collect data on these variables. However, data for certain variables – family members’ involvement in the board, socioemotional wealth, family generation, international experience, board education, and board experience, were not available in any database. Consequently, the researchers created the data for these variables using the qualitative approach from RBI reports, company websites and 7 annual reports. Thus, the qualitative method aided in measuring those variables which are otherwise difficult to capture, particularly peculiar family characteristics. Consequently, the inclusion of such variables helped in creating a holistic framework in explaining the internationalisation of Indian family firms. Overall, the results for family firms’ degree of internationalisation indicate that all these factors i.e., peculiar family characteristics, business group-related factors and organisational factors play a significant role in determining the Indian family firms’ degree of internationalisation. Further, there are some significant findings of the thesis which indicate that the most variable in explaining the internationalisation of family firms is family members’ involvement on board. Consequently, it is observed the presence of “familiness” in family firms distinguishes their internationalisation decisions from that of non-family firms. These firms realise that internationalisation will demand the employment of external financial and human resources. The presence of external funds and human resources will dilute the family control and wealth in the business. Consequently, family members have the fear of family wealth erosion and dilution of family control, thus they refrain from undertaking internationalisation activities. Another significant finding of the study indicates that family ownership, one of the important peculiar family characteristics, does not play a significant role in determining the internationalisation decisions of Indian family firms. Various researchers in past (e.g., Basly, 2007; Boellis et al., 2016; Pogelli et al., 2019) have defined family firms merely on the basis of family ownership. This finding in itself raises a question on the definition of family firms. Is family ownership solitary enough to define a family business? Or is it also important to ensure the involvement of the family members in the firm’s operations? It is imperative to understand that family ownership alone does not imply that family is influencing the decision making of the organisation. Thus, active involvement of family members in the firm’s operations play a crucial role in determining the “familiness” in the business. However, the results for family firms’ foreign market entry mode choice indicate that the overall model is not significant. Further, none of the independent variables has a significant impact in determining the entry mode strategies of family firms. Thus, it was observed that a complete model requires more variables in order to explain the entry mode decisions of family firms. Perhaps these entry mode decisions are based on host and home country factors. However, the focus of this study was to examine the role of peculiar family characteristics, business group-related factors and organisational factors in explaining the foreign market entry mode strategies of family firms. Thus, country-specific factors were outside the scope of this study. Consequently, it presents a great opportunity for the researchers in future to incorporate these home and host factors in the complete model to examine the family firms’ entry mode strategies. The study has certain limitations – (i) The data for various peculiar family characteristics was not available for the past years, hence, researchers had to limit the study to cross-sectional analysis for the FY 2020-21 rather than undertaking a panel data analysis; (ii) Due to the unavailability of data with respect to small family firms, the researchers could not empirically undertake the comparison of the factors impacting the internationalisation of large vs small family firms; (iii) Due to the data limitation, the entry mode data was limited to WOS and JV.