Sihong Wu, Francesco Chirico, Di Fan, Jiayan Ding, Yiyi Su

Journal of World Business

Recommend Reason

In a fast-changing world, strategic decisions to exit a foreign market become more complex for family firms, owing to their vulnerability to uncertainty in internationalization. However, there is scant research on family firms’ foreign market exit with respect to their responses to contextual influences from home and host countries. This study reconciles the socioemotional wealth (SEW) perspective and the friction lens to address this gap.

About the Author

Sihong Wu, Business School, University of Auckland

Francesco Chirico, Macquarie Business School, Macquarie University; Jonkoping International Business School–Jonkoping University, Centre for Family Entrepreneurship and Ownership (CeFEO)

Di Fan, School of Management, RMIT University

Jiayan Ding, School of Economics and Management, Tongji University

Yiyi Su, School of Economics and Management, Tongji University

Keywords

Historical military friction; Cultural friction; Foreign market exit; Family management; Family generation; Family firms

Brief Introduction

The past two decades have witnessed a significant change in the globalization trend of an increasingly fragmented world filled with global frictions, which have impacted firms’ strategic agilities and operations, especially in developing countries. Among all challenges posed by global frictions, foreign market exit—defined as the cessation of the operation of a foreign subsidiary by the parent firm—is, perhaps, the hardest strategic response. This study embraces the SEW perspective (in family business research) and the friction lens (in the IB field) to examine the influence of frictions on family firms’ foreign market exits. Using a sample of 1,455 subsidiaries established by 413 Chinese family firms in 2009-2018, we find that historical military friction increases family firms’ foreign market exit, while cultural friction leads to a lower exit propensity. We also find that family management reinforces the friction-exit relationships, and this effect is strengthened when the family firm is controlled by the first generation. Our theory and related findings deepen our understanding of the foreign market exit decision of family firms while offering important theoretical and managerial implications.

The research makes three theoretical contributions. First, this study advances our understanding of family firms’ foreign market exit while filling an important research lacuna in family firm internationalization. Second, by incorporating a temporal perspective to test the impacts of historical military and cultural frictions, from historical and contemporary views, on family firms’ foreign market exit, this study enriches current research on family firm internationalization and responds to multiple calls for assessing how frictions affect firms’ international strategies and the role of the external context. Third, it incorporates aspects of family firm heterogeneity, in terms of frictions, family management and family generation in control, which help advancing our understanding of family firms’ diversity in international decisions.

Link: https://www.sciencedirect.com/science/article/pii/S1090951623000792