Academic journal article Academy of Entrepreneurship Journal

International Expansion of Family Firms: An Integrative Framework Using Taiwanese Manufacturers

Academic journal article Academy of Entrepreneurship Journal

International Expansion of Family Firms: An Integrative Framework Using Taiwanese Manufacturers

Article excerpt

INTRODUCTION

Globalization and acceleration of technology diffusion has propelled the traditional family firms to undertake international expansion. With nearly one-quarter of the world's population and one of the fastest rates of economic growth for the past two decades, China has attracted many Asian family firms for their business expansion (Hsiao & Hsiao, 2004). Since 1996, the foreign direct investment (FDI) into China has exceeded $40 billion annually. Much of that has come from neighboring Asian countries or regions (Gao, 2005). During this period, there has been significant conceptual and empirical progress in the literature pertaining to the causes and outcomes of FDI (Huang et al, 2004). However, the research focus has been on multinational corporations from developed countries. The determinants of FDI and its relationship to firm performance, particularly for traditional family firms, remains largely understudied.

As more and more emerging economies participate in the global economy, traditional family firms have aggressively expanded their reach globally. For example, Hong Kong Li Ka Shing family has built a business empire that includes: banking, construction, real estate, plastics, cellular phones, satellite television, cement production, retail, hotels, transportation, airports, electric power, steel production, ports, and shipping. One of its flagship companies, Hutchison Whampoa Limited, is the largest port administrator managing more than forty-two ports worldwide. The importance of this phenomenon has attracted the attention of researchers. Many studies were carried out to understand whether there are any significant differences in the motives for traditional family firms and multinational enterprises (MNEs) (Fernandez & Nieto, 2006; Wang, 2006). Two research strands have made this direction promising. First, the emerging trend of international expansion of traditional family firms has provided a natural setting to further advance family business research. Most family-business research currently is largely descriptive rather than prescriptive. By using more analytical approach, Fernandez and Nieto (2006), and Wang (2006) have examined the impact of ownership structure on the international involvement of family firms. Second, there is an increasing body of research on the international expansion of small and medium sized firms (Lu & Beamish, 2001). Often the studies of SMEs may cross with the studies of family firms (Fernandez & Nieto, 2006).

Research involved in SMEs and family firms share the same difficulty to gather public information. Unlike most public-traded MNEs, SMEs and traditional family firms tend to be more restricted in disclosing their private information to the public. Therefore, case study and survey methodology have been used in the past to study SMEs and family firms. Research has indicated that a firm's level of FDI is a function of its ability to amass and develop strategically relevant resources subject to the institutional constraints. The differences in a firm's ability to accumulate and deploy strategic resources lead to sustainable competitive advantage and superior firm performance (Barney, 1991; Chi, 1994; Huang et al, 2004). Therefore, FDI is the outcome of a firm's exploitation of its strategic resources and competitive advantages across borders. Consistent with the internalization perspective and the resource-based perspective, the market signaling theory of FDI states that the level of FDI serves as a market signal to the public for not revealing a firm's private advantage (Liu, 1997). This market signaling in turn positively benefits the firm's performance. In this paper, we attempt to integrate the various theoretical perspectives of FDI and develop an integrative framework/model of international expansion of family firms. Particularly we apply the market signaling theory (Spence, 1973; Stiglitz, 1976) in the study of traditional family firms and aim to explain their FDI motivation and behavior. …

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