Kennesaw State University business professors Torsten Pieper and Joe Astrachan of the Cox Family Enterprise Center warn family-owned enterprises that engaging in international trade “already seems critical to survival.”
Their commentary begins here:
Family businesses are the prevailing form of business around the world. No other business produces and employs more people than family businesses. They give more to their communities, hire more, lay off less, have progressive employment practices and they do so regardless of the generation of ownership. And while their business would be worth something if sold, the typical family business owner cares far too much about their employees and communities to consider selling unless compelled to do so by banks, taxes, regulations, or other outside forces.
For all their strengths, U.S. family businesses tend to not be global in nature (less than 1 percent export), preferring the relative safety of a single political system, a single currency and a relatively homogeneous and business-friendly culture. But, maybe they should be more oriented to selling to consumers in other countries.
We say this because accepting and overcoming a challenge, such as internationalization, leads to vital growth and development. Difficulty requires discipline. Discipline is a critical factor that would enable businesses to continue to serve the interests of stakeholders.
A good example of this self-imposed discipline can be seen in the Mittelstand, mostly small-to-medium-sized firms in German-speaking countries, notably Germany, Austria and Switzerland. These family-owned businesses enjoy strong positions in foreign markets and account for 19 percent of total exports by German firms.
In the Atlanta region alone, more than 250 German firms call the United States their second home. Many of them belong to the Mittelstand, but they also include global players such as Porsche, also a family business.
One of their key attributes that allows them to pursue what business schools in the U.S. might teach as non-conventional strategies consists of the very fact that they are family owned. Such ownership adds a long-term perspective that goes beyond short-term profit maximization and leads to value creation that can take years to establish.
Furthermore, risk is carefully weighted against potential benefits, resulting in a generally more conservative financing structure (not surprisingly, many Mittelstand firms are 100 percent bank debt free). Less debt is also a challenge that requires discipline to overcome. There can be many benefits of low debt, particularly in coming out of a slowdown in the business cycle. While companies in most of the world were faced with repaying massive amounts of bailout money and debt, the German Mittelstand coped with relatively minor impairments thanks to conservative financing.
A second success factor is family businesses prefer centralized decision-making for financial and strategic decisions. This is not to imply that they operate autocratically. Input is embraced yet processed centrally to assure that decisions align with the business, family values and vision.
Values are typically shared by family and non-family employees and often extend to suppliers and customers. A climate of high internal trust enables the business to focus on the outside and most importantly its customers.
In international business, the characteristics of family businesses in terms of private ownership, conservative financing, centralized strategic decision-making and trusting relationships prove particularly useful. Hence, the decision to internationalize can be made quickly and decisively against the potential risks and corporate naysayers.
One additional point: Family relationships often facilitate new export relationships. Families like to do business with families. It provides reassurance to customers when owners representing their company maintain relationships.
While exporting is now a strategic choice and not at all a necessity, it will likely not always be so optional. Advancements in technology and communication, paired with greater permeability of national boundaries, make the world increasingly flatter.
Globalization is the new norm; and engaging in international trade will likely become, and already seems critical to, survival. Family businesses are best poised to take advantage of the opportunities presented by export and going global, and we believe they would be wise to pursue this strategy sooner than later.
This article first appeared in the Atlanta Journal-Constitution on April 1.