Internationalization of Family Businesses

Internationalization is the process by which a company moves beyond its home market, selling, producing or investing in other countries. For a family business, the move carries a question that a widely held company rarely faces: how much of the family's control, money and reputation are we willing to put at risk in a place we don't know?

This article covers how family firms go international and why research keeps finding that they do it differently. It explains the Uppsala model, the entry modes a family can choose from, what the academic evidence says about family control and foreign expansion, and how non-family managers and the next generation change the picture. It sits within the family business growth strategies section of the library.

What Internationalization Means for a Family Firm

Going international isn't one decision. It's a series of them: which country, which customers, which way in, how much to commit, and who on the team will own it. A family firm can sell abroad through a distributor and never leave its home office. Or it can build a factory in another continent and send a family member to run it. Both count, and they carry very different risk.

That range matters because "does a family firm internationalize?" turns out to be a poor question. The better one is how far, how fast, and by what route. The research below keeps returning to that distinction.

Key Facts

• A review of 72 journal articles on family firm internationalization (published 1980 to 2012) proposed an integrative model combining socioemotional wealth with the revised Uppsala model (Pukall and Calabrò, Family Business Review).
• A meta-analysis of 76 studies covering 41 countries found that the link between being a family firm and internationalizing varies with family control, the type of internationalization, and the home country's institutions (Arregle et al., Entrepreneurship Theory and Practice, 2017).
• A study of 203 US family businesses found a J-shaped relationship between family involvement on the board and sales internationalization (Sciascia et al., Journal of Small Business Management, 2012).
• The 2009 revision of the Uppsala model argues that outsidership in the relevant network, more than psychic distance, is the root of uncertainty in foreign markets (Johanson and Vahlne, 2009).

The Uppsala Model: Learning Your Way Abroad

The most cited framework for how firms internationalize comes from Jan Johanson and Jan-Erik Vahlne. Their 1977 paper in the Journal of International Business Studies, "The Internationalization Process of the Firm", described internationalization as a gradual process. The model emphasizes the gradual acquisition, integration and use of knowledge about foreign markets and operations, and the incrementally increasing commitments to foreign markets.

The logic is simple and it fits how most families already think. You don't bet the company on a country you've never operated in. You learn a little, commit a little, and commit more as the learning pays off. A firm that has sold through a distributor for five years knows far more about that market than one reading a consultant's report, and it can justify a bigger investment because the uncertainty has shrunk.

The 2009 revision: networks and outsidership

In 2009, the same authors revised the model in "The Uppsala internationalization process model revisited". They write that the business environment is now viewed as a web of relationships, a network, rather than as a neoclassical market with many independent suppliers and customers. In that view, outsidership in relation to the relevant network, more than psychic distance, is the root of uncertainty. The change mechanisms stay essentially the same as in the original, with trust-building and knowledge creation added, because new knowledge is developed in relationships.

For a family firm, that revision is useful. Family businesses often have unusually deep, long-lived relationships with suppliers, customers and bankers at home. The revised model suggests the question isn't "how different is that country?" but "who in that country will let us into their network, and why would they?" A reputation built over generations can be worth a lot in the answer, and so can a partner who already sits inside the network.

Entry Modes: Choosing How to Go In

Entry mode is the structure a firm uses to operate in a foreign market. The standard options differ in how much capital, control and risk they involve.

Read left to right, the table also reads as a typical Uppsala path: low-commitment modes first, higher-commitment modes after the firm has learned. It isn't a rule. Some firms skip steps, and some stay at exporting by choice.

What the table doesn't show is the tradeoff that sits under every row. Higher commitment usually brings more control, but it also needs more capital, more management time and more tolerance for risk. A family that wants to keep full ownership and avoid debt will find that limits which rows it can pick. That's why entry-mode choice in a family firm is as much a governance decision as a market one. It ties directly to how the family thinks about diversification, since going abroad with the same product and entering a new business at home are competing uses of the same scarce capital.

What the Research Says About Family Firms

Is a family firm more or less international than other companies? The evidence points in more than one direction, and the interesting work explains why.

Review of the literature

Thilo Pukall and Andrea Calabrò reviewed 72 journal articles on the internationalization of family firms in Family Business Review. They found the previous results inconclusive. Their response was an integrative model that combines socioemotional wealth with the revised Uppsala model. Their framework looks at when and how family firms internationalize, focusing on risk attitudes, the role of knowledge, and the role of networks.

The meta-analysis

Jean-Luc Arregle, Patricio Duran, Michael Hitt and Marc van Essen ran a meta-analysis of 76 studies covering 41 countries, published in Entrepreneurship Theory and Practice. They report that large differences across studies and countries in the relationship between family firm status and internationalization are explained by three things: the role of family control, the type of internationalization, and the home country's institutional context, specifically minority shareholder protection and generalized trust.

That finding is worth sitting with. It says there's no single "family firm effect." A family that controls tightly, in a country where minority shareholders are poorly protected, behaves differently from one operating under strong investor protection. And a firm that exports a product abroad is doing something different from one that invests in foreign subsidiaries.

Ownership and export: the Spanish evidence

Zulima Fernández and María Nieto studied family ownership and exporting among small and medium-sized Spanish companies, in a working paper from Universidad Carlos III de Madrid (La estrategia de internacionalización de la pequeña empresa familiar). Using a resource-based framework, they asked what problems family ownership creates for obtaining the resources needed to enter international markets. Their results confirmed a negative relationship between family ownership and internationalization through export activity. But they also showed that pursuing new resources, either by bringing new generations into management or by cooperating with other firms through equity participation or alliances, had positive effects on family firm internationalization.

A caveat applies. This is one country, one size band (SMEs), and a working paper, so treat it as an illustration of a mechanism, the resource constraint, rather than a universal rate.

Board involvement and the J-shaped pattern

Salvatore Sciascia, Pietro Mazzola, Joseph Astrachan and Torsten Pieper studied 203 US family businesses in the Journal of Small Business Management. Previous research had shown that family involvement on the board can be both positive and negative for sales internationalization. Drawing on stewardship, stagnation and upper echelons perspectives, they proposed and confirmed a nonlinear, J-shaped relationship between family involvement on the board and sales internationalization. In plain terms, the relationship isn't a straight line. The pattern depends on how much of the board the family holds, which is a reason to look at the family business board when internationalization stalls.

Socioemotional Wealth and Control Concerns

Most of this research leans on one idea: socioemotional wealth, the non-financial value a family gets from owning the business, such as control, identity, reputation and the ability to pass the company on. Pukall and Calabrò built their model by integrating that concept with the revised Uppsala model, which is itself a sign of how central it has become to the topic.

The mechanism isn't hard to see. Internationalization tends to need outside money, outside partners and outside managers. Each of them can dilute family control. A joint venture means sharing decisions. An acquisition may need debt or new shareholders. A greenfield plant in a new country needs a manager the family can trust and may not have. If the family values control and independence for their own sake, a plan with good financial returns can still feel like a bad trade.

That's also why the family's own preferences should be part of the plan from the start. The questions below put the control concerns on the table before the board approves an entry mode.

1. How much control does the family need to keep over the foreign operation, and on which decisions?
2. Can the family accept a minority partner abroad, or only a wholly owned subsidiary?
3. What's the maximum debt or dilution the family will take on for this market?
4. Who in the family, if anyone, wants to live and work in the new country?
5. What happens to the plan if the first market underperforms for three years?

Non-Family Managers and the Next Generation

Two groups tend to change the speed and direction of a family firm's international plans.

Non-family managers

International expansion often needs experience the family doesn't have: running a distributor network, negotiating with a foreign regulator, staffing a plant overseas. Hiring non-family managers with that background is the usual way to fill the gap. It requires a family that's willing to share real decision rights, which can be hard in a firm where trust has historically followed family lines. The article on non-family executives covers how families bring in and keep outside talent, and the non-family CEO article covers the biggest version of that step.

The Fernández and Nieto results fit here. They describe new resources as the lever, whether through new management generations or through partnerships, and outside managers are one way to bring those resources in.

The next generation

A new generation often arrives with different networks, foreign education or a different appetite for risk. In the Spanish study above, bringing new generations into management was one of the routes that positively affected internationalization. That doesn't mean every successor will push for expansion, or that expansion is right. It does mean the firm's international ambition and its next-generation leadership plan are linked, and a successor who's given a foreign market to run may build credibility there that wouldn't come from the home office. The strengths and weaknesses of family businesses article is worth reading alongside this one for what the family brings abroad and what it lacks.

A Practical Sequence for Going International

The research doesn't give a recipe, but it does suggest an order of questions.

1. Define the family's limits first. Settle control, debt and dilution limits before choosing a market.
2. Pick the market with the network in mind. Ask who can open doors there, as the revised Uppsala model suggests, rather than only which market looks largest. The market expansion model and the Ansoff matrix help structure the choice between selling existing products abroad and developing new ones.
3. Start with the lowest commitment that tests the idea. Exporting through a partner or a small pilot teaches the firm what it doesn't know.
4. Add capability deliberately. Bring in non-family managers or a local partner where the family lacks experience.
5. Escalate commitment as knowledge grows. Move from distributor to joint venture to subsidiary only when the evidence supports it.
6. Keep the home advantage in view. Porter's diamond model is a useful lens for what a firm's home base gives it, and what it'll need to rebuild elsewhere.