Family businesses from emerging markets and choice of entry mode abroad: insights from Indian firms

Abstract

Internationalization of family businesses (FBs) is an interesting topic that has received extensive attention in the literature during the last decades. Prior studies emphasized the conservative attitude toward risk of FBs. However, studies addressing international decisions of emerging-market FBs (EMFBs) are still scarce. We investigate whether home and host countries matter when EMFBs choose the entry mode abroad. By doing so, we discern whether they follow the same behavioral pattern as developed-country multinational enterprises (MNEs) or they show a distinctive strategic behavior. Drawing on a sample of 298 foreign market entries carried out by Indian MNEs, our results show that Indian FBs prefer acquisitions instead of greenfield investments. Moreover, host country factors matter, since outward foreign direct investment (OFDI) of Indian FBs in developed markets is associated with a preference for acquisitions, whereas OFDI in developing countries is associated with greenfield investments.

Family firm internationalization: Past research and an agenda for the future

“…In the second stage (i.e., establishment mode decision), the level of family ownership positively influences the likelihood of choosing acquisition as the entry mode; acquiring an ongoing business with access to local networks and markets potentially increases financial returns while reducing threats to SEW. Motivation for foreign expansion also plays a role: family firms that enter foreign markets with a strategic asset seeking motive may show a greater propensity for acquisitions as a way to quickly obtain complementary assets and catch up with international competitors -a strategy that may be more pronounced among family firms in emerging economies (Rienda, Claver, Quer, & Andreu, 2019).…”

HRM practices in South Asia: convergence, divergence, and intra-regional differences

“…The economy remained closed for a long period of time, thereby broadening the government's stake in all consumer and social services (Ahluwalia 2002). Since the early 1990s, the government has gradually opened the economy, with greater reliance on market drivers, a resilient and growing private sector and denationalization of public enterprises (Rienda et al 2019). Post-reform economic progress has been strong, with an annual growth of 7.4%, making India one of the fastest growing economies among the emerging nations (Asian Development Bank 2017).…”

“…After the 1990s economic reforms, domestic firms faced substantial international competition. However, this competition enabled the domestic Indian firms to initiate international ventures (Rienda et al 2019). As a result, these firms began to appreciate that effective HRM differentiated firms' performance (Cooke and Saini 2010).…”

Internationalization and governance of Indian family-owned business groups

“…Rienda et al (2019) studied the mode of entry choices that Indian family-owned firms made while going international. Their results suggest that though overall Indian family-owned firms prefer acquisition route over greenfield investment, host country matters for in the entry mode choice.…”