Is there any room for family business into European Union 2020 Strategy? Family business and regional public policy

Abstract

The role of family firms within economic growth and development has been neglected, and family business dimensions have been overlooked in regional intervention policy. That is, while family firms seem to play a significant role in the construction of the European Union, family firms are omitted from public policy beyond direct action related to tax benefits or advice about ownership and management succession. Therefore, the aim of this article is to provoke a debate on the importance of the family business dimension for developing and implementing regional public policy. Specifically, this article addresses the question of whether the family firm matters for regional development and, if so, how the family business dimensions can be included in regional policy strategies. We built our arguments following the regional familiness model and considering that family businesses’ effect on regional development can occur at the firm and regional levels. Our main conclusion is that any public policy intervention should consider the regional familiness characteristics of the regional productive structure because it may boost or hinder regional competitiveness and affect economic growth and development.

Keywords

European Union Europe 2020 family business public policy firm familiness family firms regional development regional familiness

Introduction

Family firms represent more than 60% of all European companies—from very small firms to large international companies (EC, 2009). For instance, the backbone of the German economy is made up of “German Mittelstand” firms, which are mainly composed of small and medium family firms. These firms generate 52% of total economic output, employ 60% of all employees subject to social security contributions, train four-fifths of apprentices (enabling Germany to maintain the lowest youth unemployment rate in the European Union: 7.9% in 2012 compared to 22.8% in EU27), and export 19% of total exports by German firms (BMWi, 2013). Moreover, family firms represent an important actor in other European national economies, such as Sweden (Bjuggren et al., 2011) and Italy (Cucculelli and Storai, 2015).

At first glance, family firms seem to be the invisible hand responsible for economic and social development within the European Union (see for instance Adjei et al., 2016). However, even with the above facts, family firms and their link to economic and regional development have been overlooked within economic development studies (see the literature review made by Capello (2008)) and, on the other hand, family business studies have tended to neglect questions about whether and how family firms boost or hinder regional development (Stough et al., 2015).

Therefore, the family business—as a dimension itself—has been overlooked in regional intervention policy. In other words, while family firms seem to play a significant role in the construction of the European Union, family firms are directly omitted from public policy beyond direct action related to tax benefits or advice about ownership and management succession. For instance, the only best practice examples defined by the Directorate-General for Enterprise and Industry (Pacevicius Mente and Diegelmann, 2013) related to family firms is about mentoring succession process. Moreover, the words “family business” and “family firm” have not been mentioned in any of the flagship initiatives created to support the European Union 2020 strategy (EU, 2014).

In order to address the above-mentioned theoretical and practical gaps, this paper aims at attempting to build a bridge between the academic and policymaker debates about family business, regional development, and public policy. Specifically, this article addresses the question of whether the family firm matters for regional development and, if so, how the family business dimensions can be included in regional policy strategies.

By using the regional familiness¹ model developed by Basco (2015), we argue that the family business dimension is critical for designing and implementing regional policy strategies because family firms may play a significant role in creating, transforming, and allocating resources (regional factors) within a geographical space. In addition, family firms may affect the quality and quantity of proximity regional processes (e.g. spillovers, information exchange, learning processes, social interactions, competition dynamics, and institutional dynamic). Hence, family firms’ potential effect on regional factors and processes may in turn impact agglomeration effects, specifically externalities, such as survivability, innovation, entrepreneurship, firm growth, and internationalization. Our main conclusion is that any public policy intervention should consider the regional familiness characteristics of the regional productive structure that may boost or hinder regional competitiveness and affect economic growth and development.

This paper is organized as follows. First, we briefly present an overview of the theoretical background for the regional policies in order to explain how theoretical and practical ideas have evolved so far. We finish this section by summarizing the last European strategy developed by the European Union for 2014–2020. Due to the omission of the family business dimension in the intervention strategy, in the following section, we discuss three topics in relation to each other: family business, regional development, and regional policy. The aim of this section is to theoretically debate the importance that family firms could have for regional development. Then, we move on to the academic and policymaker debate by presenting some family-oriented policy interventions related to five externalities: survivability/longevity, firm growth, innovation, internationalization, and entrepreneurship. The last section—the discussion and conclusion—contains a summary of our ideas and the contributions of our research.

Literature review

A brief review of the link between regional development and regional policy

The term development has received significant attention from different stakeholders: from the academic side (e.g. economists, geography, and sociologists, among others) and from the practitioner side (e.g. policymakers, politicians, and public government consultants). This diversity of views has influenced the conceptualization of development itself and has also affected the operationalization of regional development (Rocha, 2004), the meaning of regional development has found different voices, leading to a broad interpretation of the term that accounts for social, political, and cultural concerns (Pike et al., 2006) beyond the dominant economic stream. For this reason, regional development studies have been considered a balance among quality of life, social cohesion, economic competitiveness, and economic growth. Consequently, taking into consideration a broad and inclusive perspective, we can say that regional development is about the geography of welfare and its evolution (Campbell et al., 2013).

There are two different approaches for studying regional development: regional growth perspectives and development perspectives (Capello, 2008) (see Figure 1). The former is macro- and micro-economic in nature (Crescenzi and Rodríguez-Pose, 2011), while the latter is micro-territorial and micro-behavioral. Each perspective has influenced public policy interventions in different ways because each perspective has different visions about what regional development is and what dimensions should be intervened.

Figure 1.

The intellectual root link between regional development and regional policy.

Regional growth perspective has mainly focused on trying to alter resource endowment in order to boost economic development and growth. This focus is due to regional growth perspectives’ roots in the neoclassical growth framework, which focuses on factors as determinants of economic growth that should ultimately lead to higher levels of development. The endogenous vision incorporated into the neoclassical growth perspective has led researchers to consider not only physical factors (e.g. land, capital, and labor) but also innovation and human capital factors (Lucas, 1988; Romer, 1986). Until a few decades ago, European regional development interventions were influenced by this intellectual knowledge (Rodríguez-Pose, 2013). Under this tradition, the intervention process was seen as being top down, affecting the socioeconomic process through the supply side or demand side and having a strong impact on economic sectors (Barca et al., 2011). This approach is based on the idea that the greater the investment in infrastructure (e.g. railways, motorways, airport, etc.), education, and economic activities, the greater the economic growth and development, which would ultimately reduce inequality between regions. This represented the main policy intervention logic after World War II.

On the other hand, the development perspective is intrinsically endogenous, bringing renewed thinking that potential indigenous local and regional aspects may favor local competitive advantage (Pike et al., 2006). This perspective’s inductive reasoning roots has led researchers to consider local specificities (Crescenzi and Rodríguez-Pose, 2011) as a key factor of development. That is, the development perspective assumes that development depends on the embedded components of socioeconomic and cultural aspects, which determine the success or failure of regional and/or local economies. Under this tradition, the process of intervening was seen as being bottom up, decided by local stakeholders, and shifting toward the promotion of endogenous development with a rediscovery of entrepreneurship (Fritsch, 2008), small and medium firms (Audretsch, 2002), agglomeration (Ottaviano and Puga, 1998), and institutional (Rodríguez-Pose, 2013) dimensions. This new intellectual perspective to understand regional development gradually emerged after the oil crisis in the 1970s. Specifically, development perspectives emerged in reaction to the limited effectiveness for regional development (such as regional convergence) of old traditional interventions based on growth perspective which mainly relied on factors, designed top down and based on liberal economic ideology which was focused on privatization, deregulation, and liberalization of markets (Bachtler, 2001).

In the process of European integration, European regional policy has shifted its focus from growth perspective to development perspective and has been tailored based on the specific challenges that the European Union has faced (e.g. economic and political crises, enlargement by expanding reach and integrating poor regions, and integration of postcommunist areas). Since 1957—when the preamble of the Treaty of Rome explicitly mentioned the need to ensure the harmonious development of European integration—until the last strategy (European Union 2020 strategy), European regional policy has been concerned with the large regional inequalities and disparities within the European Union territory because they could threaten the economic, social, and political instability across Europe (Gang, 2012). During this time, regional policy focused on regions by using a holistic approach and a bottom-up perspective, basically developing a networking and bargaining process between actors (Koschatzky and Stahlecker, 2010). That is, the policy was based on the endogenous perspective (Bachtler, 2001).

Next, we focus on the last strategy presented by the European Union for the next six years. The Europe 2020 strategy contains the main guidelines for any regional public policy in the European context. Our intention is to use this macro-strategy as a way to introduce family business as a dimension that should be considered in regional policies.

European Union 2020 strategy and flagships

The renewed European Union cohesion policy for 2014–2020 aims at strengthening economic, social, and territorial cohesion across the European Union by attempting to correct imbalances between regions. The European goals are drawn in the new Europe 2020 strategy, which contains three main priorities: smart growth, sustainable growth, and inclusive growth. This strategy identifies five headline targets: employment, research and development, climate change and energy sustainability, education, and poverty and social exclusion. Moreover, priorities and headline targets are followed by seven flagship initiatives (“Innovation union,” “Youth on the move,” “A digital agenda for Europe,” “Resource efficient Europe,” “An industrial policy for the globalization era,” “Agenda for new skills and jobs,” and “European platform against poverty”) describing the key regional, national, and European initiatives to reach headline targets.

Under the umbrella of the Europe 2020 strategy, policies should be created and implemented at the regional, national, and European Union levels. That is, the economic, social, and territorial cohesion aims of the Europe 2020 strategy reflect a broader approach for inclusive regional development, which can be defined as the evolution of welfare rather than simple economic growth. Regions, cities, and smaller municipalities are the key places to implement policies to achieve Europe 2020 goals.

Ambitious targets require significant funding, which is provided from three funds under the European Union cohesion policy: the European Regional Development Fund, the European Social Fund, and the Cohesion Fund. Each of these funds is focused on particular investments. For instance, funds for business support will mainly be allocated under the European Regional Development Fund, which is targeted at the small and medium enterprises’ (SMEs) competitiveness, among other priorities. The cohesion policy for 2014–2020 supports entrepreneurship and SMEs’ growth, including access to financial sources (e.g. loans, venture capital, etc.), investment in human capital, strengthened links with universities and research institutions, etc.

As was mentioned above, any particular support for firms and the business environment should emerge and be defined at the national and regional levels with the aim of achieving strategic European objectives (see Figure 2). However, despite some degree of freedom, countries and regions usually follow the path highlighted in the European Union strategic papers. Under these circumstances, the European Commission’s position is crucial.

Figure 2.

EU initiatives and policy instruments for delivering the Europe 2020 goals.

In the 2014–2020 European documents (in the field of regional development, specifically SMEs) approved by the European Commission, SMEs are viewed as a homogenous phenomenon (with some exceptions regarding startups and new firm creation). For example, family firms, as a particular type of organization, are mentioned in “A ‘Small business act’ for Europe” and are considered only in the context of business transfer (i.e. ownership and management succession) and the skills associated with this event. However, taking into account that family firms have specific goals, needs, and behaviors, that they are the most representative form of organization, and that they are an important player in regional development that could accelerate the desired changes in regional performance, we think the family business phenomenon should be introduced in the current policymaker debate in order to refine and enhance regional policies as well as their implementations. In the next section, we attempt to further this debate by linking three main research areas: family business, regional development, and regional policy.

Family business, regional development, and regional policy

What is family business?

The study of family business has its roots in the experience of practitioners working with family firms. While the definition of the family business has arisen as an important aspect for the legitimacy of the emerging field of study, it has conditioned the field itself by considering that family business research is about the differences between family and nonfamily firms. In this context, there have been different attempts to clarify the concept of family business (Astrachan et al., 2002; Chua et al., 1999; Mandl, 2008; Westhead and Cowling, 1998) based on two main components: demographic and behavioral parameters.

Basco (2015: 261) posited that there “is consensus on some parameters used to classify a firm as a family firm, such as when family members participate in the firm’s management, ownership, or governance bodies or when the firm has succeeded the first generation” (Chua et al., 1999; Westhead and Cowling, 1998). This set of parameters has been called demographic dimensions. Even though these parameters are easy to determine (i.e. can be collected from secondary data), there is no consensus regarding the precise threshold to be used to distinguish a family firm from a nonfamily firm (e.g. what is the percentage of family shareholders necessary to consider a firm a family firm). Moreover, the threshold can vary substantially from one country to another (Mandl, 2008). On the other hand, there have been some attempts to make the concept operative using behavioral parameters, such as measuring intentions to transmit the firm from one generation to another (Litz, 1995) or simply measuring the family’s influence on decision making (Basco and Pérez Rodriguez, 2009), to distinguish different types of family firms.

Consequently, the distinctiveness of family firms can be traced in the elemental interrelationship between the family logic and firm logic. The interplay between these two systems has been characterized by the different degrees of influence the family has on the firm. The family’s influence on the firm can arise in different areas of decision making (e.g. at the governance or management level) (Basco and Pérez Rodriguez, 2009) and with different intensities (Basco and Pérez Rodríguez, 2011). Family business research has started a debate as to what role the family could play at the individual level and firm level. For instance, the individual level accounts for those family-related aspects that make an individual or group of people undertake decisions to start or continue a firm (Aldrich and Cliff, 2003), while the firm level accounts for those family-related aspects that alter decision making and make family firms a competitive form of organization.

Once how the family functions at both the individual and firm level are recognized, it is possible to reconsider family firms’ role in the economic landscape. Family firms are social and economic actors. Family firms’ main points of distinctiveness are based on individuals’ motivations to become owners, ipso facto owners (e.g. potential successors), owner-managers, and firm managers who intrinsically develop close connections with the family. This circumstance affects the way a family firm competes in the market (Basco, 2014) and acquires, organizes, and allocates resources (Barbera and Moores, 2013; Cucculelli and Storai, 2015).

Therefore, the study of the family firm as an agent for regional development should not only be focused on the efficiency perception (i.e. considering the rationalist research stream based on the neoclassical theory of the firm, transaction cost of the firm, and the behavioral perspective of bounded rationality) but also on the socioeconomic perception (i.e. considering institutionalism, embedded networks, learning entities, and the resource-based view, among other perspectives). From a socioeconomic perspective it is possible to understand the firm as a social construction, which could help explain the family business as a dimension for regional policy.

Family business in the current regional policy

Most of the public policies related to family business have focused on the family firm as an entity based on the ontological perspective of the concept of family business—that is, in the object itself. For instance, the main recommendations developed by the European Commission, specifically by the Directorate-General for Enterprise and Industry (Tajani and Hahn, 2012) and Mandl’s report (Mandl, 2008), are based on a special tax system for family firms regarding ownership transmission, formative seminars (succession), and special conditions to access capital markets among other similar practices (Glassop and Graves, 2010). This point of view is grounded in traditional small business public policies that tried to help small businesses overcome their own disadvantages due to their size (Acs and Szerb, 2007) and other lobby practices favoring wealthy families. For instance, reductions in inheritance and wealth taxes are based on huge family firms’ lobbying efforts. As one example, in Spain,

the wealth tax created in the late 1970s has been abolished by the Spanish state, and the inheritance taxes (regionally managed) have been greatly reduced by many regional governments from levels affecting a maximum of 40% of inherited wealth to less than 10% depending on the region (Perez and Puig, 2009).

These kinds of policies bring some general questions: Are traditional policies really effective for regional development when the intention is to intervene in SMEs (mainly family businesses)? To what extent do huge family firms’ lobbying efforts create family entrenchment economies that threaten the cohesion, dynamism, and integration of the European Union? Do current policies consider the family business dimension when creating and implementing public interventions?

There are no clear answers to these questions, or at least we do not have any. However, we can assert that the above-mentioned policies seem to have been created based on two premises. First, interventions are directly applicable to the firm itself, ignoring other aspects at the aggregate level through which family firms can contribute to regional development. Second, interventions do not consider the specificities of the regional context in relation to family firms, and the logic behind most interventions is “one size fits all.” We can also add that while current European Union recommendations for creating regional policies consider the endogenous perspective, family business dimensions are omitted. For instance, in the European Commission’s “Guide to Research and Innovation Strategies for Smart Specialization” (Tharenou, 2005), there is a strong emphasis on entrepreneurship and innovation, but the family firm is not recognized as an endogenous dimension that can boost or hinder entrepreneurship and innovation.

It seems that the main problem is a lack of theoretical interpretation of family businesses in regional development. Thus, it looks like that academic and policymakers do not understand what role family businesses play for regional development so as to explicitly derive regional policies that can be applied in intervention processes. Therefore, in the next section, we attempt to identify how the family firm phenomenon is related to regional development as a first step to integrate family business aspects into regional public policies.

Family firms in the model of regional development

Regional economic growth and development is supported by factors and processes. Understanding these factors and processes as well as their interactions is critical because they shape local capacity to transfer knowledge into economic wealth. Under this perspective, the family business dimension may play an important role. Basco (2015) pointed out that family firms, as economic and social actors with specificities in their behavior, may positively or negatively affect regional economic development in two different ways (see Figure 3).

Figure 3.

Regional development model.

First, family firms, as any other actor, are responsible for creating, accumulating, and allocating endogenous factors. Four factors seem to be relevant (Stimson et al., 2011) because they represent the fuel for the quantity (i.e. growth), quality (i.e. equality), and pace (i.e. rhythm) of regional development: productive factors (i.e. traditional neoclassical factors related to labor and capital), human factors (i.e. quality of labor considering education, training, skills, etc.), social capital (i.e. formal and informal networks or access to these networks), and creative/entrepreneurial capital (i.e. entrepreneurial spirit to discover and exploit opportunities).

There is evidence showing that family firms affect regional factors. Through productive factors, for instance, the family–business relationship affects family firm goals (Basco, 2016) and therefore the way an organization is governed and managed (Basco and Pérez Rodríguez, 2011) by adjusting the time frame (i.e. long-term orientation) for making decisions (Lumpkin et al., 2010). In this context, family firms may alter the extent to which tangible resources, such as capital and labor resources, are used within the boundaries of the region and the quality of these uses (i.e. efficiency). Human and entrepreneurial factors, the micro-effects of the family and family firm, could also be considered potential determinants of entrepreneurial capital (i.e. entrepreneurship and corporate entrepreneurship) (Gartner, 1985) by creating tolerance to failure, risk-taking attitudes, and social approval for initiatives, among other characteristics at the aggregate level. Family firms, to a certain extent, are also able to affect the two dimensions of social capital: structural dimensions (i.e. structure of networks) and relational dimensions (i.e. soft aspects that facilitate interaction). Social capital influences family firm’s autonomy and linkage (Woolcock, 1998), especially vertical and horizontal ties. It is expected that social interactions and networks would help “reduce the selfish pursuit of immediate gains, but concentrate on cultivating long-term cooperative relationships that have both individual and collective levels of benefits for learning, risk-sharing, and investment” (Uzzi, 1996).

Second, while having a stock of exogenous and endogenous factors is a necessary condition to generate an effect on regional development, it is not sufficient. A set of processes are needed at the regional level, such as spillovers, information exchanges, learning processes, social interactions, competition dynamics, and institutional dynamics. These processes are related to endogenous and exogenous factors through spatial aspects. One of these spatial aspects is proximity. It is through proximity that family firms may affect regional processes (Adjei et al., 2016). Specifically, because family firms are locally embedded and because of their historical, emotional, social, and economic relationship with their context, family firms may alter the thickness and quality of five proximity dimensions: geographical proximity, cognitive proximity, social proximity, organizational proximity, and institutional proximity.

There is evidence showing that family firms affect regional processes though proximity dimensions. For instance, even though family firms themselves are not able to reduce geographical proximity among actors, family firms are often committed to staying in the region even in times of crisis. Physical distance should be combined with other proximity dimensions through which family firms could exert influence. Family members’ socialization within the limits of the family, the firm, and beyond to extend participation in their social and economic lives creates the basis of cognitive and social proximity within the region. Further, a common mental frame and knowledge are the cognitive elements of networks. For instance, Gurrieri (2008) found that strong links between families and their traditions determine the cognitive and social aspects of textile networks in the Apulia region (Italy). In addition, the organizational proximity of family firms (inter- and intrarelationships) is able to develop communication channels and lubricate networks that may favor processes like information exchange, facilitate innovation-related learning processes, and make social interactions easier among regional agents (Knoben and Oerlemans, 2006). Finally, family firms could alter the strength or weakness of institutional proximity by developing values, cultural norms, and ethical principles from which formal rules (i.e. laws) emerge. Formal and informal aspects of institutions are responsible for economic trade by preserving and securing property rights, creating confidence and trust between actors, and so on.

In the above paragraphs, we described some evidence regarding family firms’ effect on regional development. However, family firms can also generate negative effects on regional development throughout the proximity paradox (Boschma and Frenken, 2010). Specifically, excess proximity, in any of its dimensions, “may slow social interactions, economic coordination, and collective learning, which may hinder positive agglomeration effects and trigger negative externalities (e.g., reduced innovation or lowered firm performance)” (Basco, 2015: 266). Excess proximity triggers the problem of lock-in (lack of openness and flexibility) (Boschma, 2005) to adapt to the global environment: (1) region and its actors have limited external contact (i.e. inter-regional linkages) because external pipelines expand the outward looking (Bathelt et al., 2004); (2) the use, exchange, and interaction of endogenous and exogenous factors are locked in relationships that cause overrepresentation on a too narrow social contact (Grabher, 1993)—that is when a network is locked into one small number of people (i.e. families). For instance, this situation can trigger the negative use of social capital (Cooke et al., 2005) with extreme consequences of encouraging rent-seeking firms. Wealthy families’ control over the public and private spheres (i.e. pyramidal groups²) affects economic development, for instance, in entrenchment economies (Morck et al., 2005).

Because the family firm is a representative form of organization that influences endogenous and exogenous resources as well as proximity dimensions, family firms may affect the formation, quality, and strength of proximity processes. This can positively and negatively affect regional development through external economies of agglomeration or externalities. Next, within this model, we rethink the role of family businesses in regional public policy.

Bringing the family business dimension into public policy

The above-mentioned model can be a useful tool to identify appropriate interventions to enhance the positive effects and discourage the negative effects of family business dimensions for regional development. Using this model, we outline specific types of interventions that match family business specificities and their interactions with regional factors and processes. To address this aim we recognize that there are two main family business dimensions: firm familiness and regional familiness.

Firm familiness and regional familiness

Firm familiness

Firm familiness “represents the family business’ unique bundle of resources because the presence of family members alters organizational objectives and incentives and thus affects firm decision making” (Basco, 2015: 260). However, family firms do not belong to a homogenous group of firms with the same characteristics, needs, requirements, weaknesses, and strengths. There have been several attempts to differentiate and distinguish family firms, including studies that propose grouping family firms based on demographic characteristics (e.g. the number of family members working in the firm or the number of generations involved in ownership and management) to more nuanced research that proposes classifications based on how family involvement affects the way an organization is governed and managed (e.g. Basco and Pérez Rodríguez, 2011). Basco and Pérez Rodríguez (2011) argued that there are three main groups of family firms: (1) “family-first-oriented” firms are those that make decisions based on what the family needs to survive, and the role of the business is to provide resources for the family; (2) “family-enterprise-first-oriented” firms are those that make decisions based on both family and business needs, and family and business systems are equally important; and (3) “business-first-oriented” firms are those that make decisions based on what the business needs to compete successfully in the marketplace, and the role of the business is to achieve competitiveness and sustainability in the long term. This classification is relevant considering that family firms behave differently not because of the number of family members working in the firm but because of the footprint family members leave on family business decision-making.

Figure 4 combines the decision-making orientations in family firms (i.e. family-first orientation, family-enterprise-first orientation, and business-first orientation) with the size of the firm based on the number of employees (i.e. small-sized firms, medium-sized firms, and large-sized firms). This figure synthesizes the magnitude of the phenomenon and the distribution according to the size and orientation the firm follows. This figure visualizes how mimicking a “one-size-fits-all” strategy policy for family firms does not seem to be appropriate. Policymakers should adopt precise approaches to differentiate the family firm population and should tailor assistance policies to their requirements and needs. For instance, policies related to taxes, access to credit, and succession training should differentiate between types of family firms because their needs are completely different. A mom-and-pop family firm (i.e. family-first orientation), such as a food shop, bookstore, restaurant, or garage, is much different than a huge industrial family firm with international subsidiaries. Consequently, any intervention that attempts to increase survivability give continuity, enhance competitiveness, compensate for disadvantages, or care for the population of family firms should contemplate the descriptive composition and characteristics of family firms by considering family effects on firm behavior. We call the consequences of this effect firm familiness.

Figure 4.

Types of family firms.

Regional familiness

As we explained above, family firms are not a homogenous group of firms and families affect the way organizations are governed and managed—namely, the way family firms strategically compete (Basco, 2014a), allocate resources, and use their resources (Barbera and Moores, 2013). Therefore, it is expected that different types of family firms have different impacts on regional economic growth and development. We consider this view to be extremely important in moving regional interventions forward by considering family firms’ embeddedness within the geographical spatial context and the type of connection that may foster or hinder regional development. Basco (2015) called these effects regional familiness.

Summarizing, firm familiness (i.e. how the family is embedded in the firm) is basically related to the way family firms create, modify, and use regional resources, while regional familiness (i.e. how the family firm is embedded in the region) is related to the way family firms’ effect on proximity dimensions and regional processes.

Based on the above interpretation, it is possible to focus our attention on intervention policies for firm competitiveness and regional competitiveness. While firm competitiveness refers to a firm’s ability to successfully compete in the market with its products/services, regional competitiveness is a region’s ability to consolidate external economies of agglomeration and positive externalities. We propose that all regional policies should view firm familiness and regional familiness as endogenous aspects for regional development to promote in five basic intervention dimensions supporting smart, sustainable, and inclusive growth within the Europe 2020 strategy: survivability and longevity, firm growth, innovation, internationalization, and entrepreneurship.

Family business and public policy intervention

Survivability and longevity

Family firm failure not only depends on business aspects and managers’ ability to detect and economically exploit opportunities but also on how the family–business relationship evolves over generations. Family is able to create, develop, and expand resources and capabilities for the firm, but family is also able to harm firm continuity. Generally speaking, a firm’s continuity (i.e. its ownership and management) tends to be a main priority for family firms. The problem arises when this priority hinders the longevity of the firm itself and, as a consequence, threatens the economic structure of the region. For instance, failure often comes when firms are not able to adapt and recreate their competitive advantages because the family behind the economic project is rooted in old traditions (Colli, 2012). Therefore, survivability and longevity interventions should consider the transformation of the family (regarding its duty as owner and manager), the firm (regarding its competitive advantage), and the regional environment to support changes and to develop absorptive capacity.

Mandl’s (2008) report as well as European regional policy recommendations (Tajani and Hahn, 2012) focus on facilitating the transfer of business, specifically ownership and management succession. Educational sessions about succession (which are quite specific, short, and merely informative) are a necessary but insufficient to achieve the aim of survivability and longevity. Really impacting survivability and longevity also requires developing the bases for entrepreneurial capital among family participants. Therefore, the continuity of the family firm is not important per se; what is important is the firm’s ability to reinvent itself as a way to be competitive by keeping the essence of being family firm. The long-term entrepreneurial and competitive advantages of family firms are directly connected to regional development. At the same time, however, geographical space contributes to the generational entrepreneurial attitudes of family firms. Therefore, any intervention to reinforce the survivability and longevity of family firms requires specific actions focusing on both the firm and regional levels depending on the specificities of the region.

At the firm level, interventions should help family firms manage the family–business relationship in a way that supports family participation as an owner group and/or management group, and they should help family firms display and internally develop entrepreneurial capabilities to sustain their competitiveness in the long term. Following the recommendation of Mandl’s (2008) report, the first aim requires educational programs (through seminars, forums, and conferences organized by universities, chambers of commerce, or other public/private institutions). The content of these educational programs must focus not only on the succession process but also on educating family members about their responsibilities as owners and/or managers. The way subsequent generations behave and interact with their family firms is important for family businesses’ survival and longevity. The second aim requires interventions to consolidate the entrepreneurial spirit among generations within both the family and the firm as well as interventions to help both the family and the firm complement each other. Because family firms are motivated by family- and business-oriented objectives, a complex strategic paradox emerges between stagnation (conservatism) and entrepreneurial attitudes. Family firms tend to mobilize themselves by accepting new ways of actions (i.e. entrepreneurial actions) when they sense real threats that can jeopardize their social, economic, or emotional family firm wealth. In this context, interventions should encourage family firms to extend their entrepreneurial vision as a mechanism to survive.

On the other hand, interventions to support the survivability and longevity of family firms need to consider the spatial dimension. If the survivability of family businesses depends on their ability to keep themselves competitive over generations, the basic conditions of cooperation and competition within the local environment seems to be a crucial element to maintain family firms’ entrepreneurial spirit. Network connections may help firms, especially family firms, avoid complacency related to past success. For instance, this is the case in the Italian district, where flexible specialization, trust, and face-to-face social relations make family firms a competitive form of organization (Piore and Sabel, 1984). Therefore, public policy should promote clustering strategies to reduce concentration power, increase cooperation (e.g. joint ventures with indigenous firms and foreign firms) to create knowledge pipelines, and support spin-off policies to foster entrepreneurship among family members.

Firm growth

Family firms not only have traditional constraints to growth like any other firm, but they also deal with the fact that growth can threaten family control over their firms. This issue affects family businesses’ strategies for growing and exploiting opportunities. One of the main concerns for family firms is to find alternatives to finance their expansion without losing family control. As a result, the pace of family firm growth tends to be slower than that of nonfamily firms because the former generally use past profit or loans from friends to finance growth (i.e. they are more reluctant to increase debt) (Ang et al., 1995; González et al., 2013; Haynes and Avery, 1997; Olson et al., 2003), while nonfamily firms are more likely to use other more risky alternatives, such as venture capital.

Current global financial problems have reduced access to credit for all firms; however, the situation is even worse for family firms. The problem with financing growth strategies lies in family firms themselves as well as in the credit market. While family firms are more reluctant to take any path that may jeopardize family control (e.g. external investors), external investors or credit firms/banks are reluctant to invest in family firms because of the informality and nepotism of their management practices, which could harm transparency. To solve these problems within the current economic market structure, for instance, family firms have developed pyramidal structures as a way to access capital, grow, and maintain firm control (Almeida and Wolfenzon, 2006; González et al., 2012). However, this solution may have negative consequences on minority nonfamily shareholders, thereby aggravating the negative spiral among firms, investors, and growth strategies.

Mandl’s (2008) report recommends developing “access to finance which does not involve the loss of control of business decisions.” One possible solution to minimize the weakness of family firms is to provide financial instruments that contain clauses limiting the influence of external capital (i.e. investors) on the firm, such as nonvoting stocks as was done in Norway and Spain (2008). However, this is a partial solution and does not attempt to solve the problem that many family ownership and management practices alarm potential investors and partners.

Policy should encourage the use of transparent practices in family firms and help family firms develop internal cultures and structures to accept external voices and develop sustainable accounting procedures. This requires specific intervention procedures to encourage a long-term culture of transparency as the first step to finding allies for growth strategies. For instance, a program of credits should be linked to training programs on transparency and professionalization within family firms (e.g. participation of nonexecutives and nonfamily members in the board of directors) without pushing family businesses into a bureaucratization. In this sense, any regional public policy should create the basis for an efficient credit market on the supplied side as well as on the demand side. Creating strong connections among locally embedded actors could create a long-term perspective for doing business, reduce the cost of transactions, and lessen information asymmetry, which could in turn affect economic development and regional mechanisms for supporting interactions among agents with different demands.

Some researchers and policymakers have focused their attention on high-growth firms as the real trigger for economic growth and regional development (e.g. Mason and Brown, 2013). However, there is ambiguous empirical evidence about whether family firms are more, less, or equally likely to be high-growth oriented than nonfamily firms (Bjuggrena et al., 2013; Mason and Brown, 2010). Research has shown that some characteristics are relevant in some high-growth firms, such as private-ownership firms, family background, long-established firms in their industry, and strong market orientation and customer engagement. The latter—close relationships with customers (i.e. a customer orientation)—seems to be the basis for family firms to sustain their cost leadership or differentiation leadership (Basco, 2014). Following Mason and Brown’s suggestion (2013), family firms can benefit from market pull-oriented policies, such as “subsidised secondments with end-user firms” or “provision for funding joint product and service development projects between SMEs and potential customers or end users so that SMEs are closely connected to their customers at the outset of the product development process” (Mason and Brown, 2013).

Finally, at the firm level, one important dimension for future regional policy related to firm growth is to consider the effect of family as a catalyst in the growth process. In some family firms, the growth strategy seems to be less dependent on one entrepreneurial person or on the result of a rational strategy (Alsos et al., 2014) and more dependent on family (i.e. family as a group of people). This implies that interventions to support family firm growth cannot be detached from the family behind the economic project. Family acts as an organizing hub that detects and exploits opportunities, establishes roles, shares resources, and mitigates risk and uncertainty (Alsos et al., 2014). Therefore, to a certain extent, family should also be considered in interventions because the family becomes a repository of experience and relationships that support firm growth (Colli et al., 2013). Moreover, another intervention could be related to helping small and medium family firms develop interfirm collaboration strategies since informal collaborations appear to be beneficial for mitigating consumer demand (i.e. extending the application of products and services) and skilled labor constraints (i.e. gaining new knowledge) (Hessels and Parker, 2013).

Innovation

Innovation (considering it in a broad sense as the “implementation of new or significantly improved products (goods or services), or processes, marketing methods, or organizational methods in business practices, workplace organization or external relations” (OECD and Eurostat, 2005) is an important aspect for firm competitiveness. The challenge that emerges is to understand how family firms behave when engaged in innovative activities. There is no conclusive evidence to support the thesis that family firms are more innovative than nonfamily firms or vice versa (De Massis et al., 2013). What seems important is not determining whether family firms are more, less, or equally innovative than nonfamily firms but to reveal under which conditions family firms seem to be engaged in long-term innovative activities. The latter is crucial for understanding the family business phenomenon and developing ideas to intervene in this area. For instance, the uncertainty and risk of being engaged in innovation activity could increase firm’s perceptions of threat over social, economic, and emotional wealth and therefore affect firm innovation. Firms in which founders or their families have an active management role show higher levels of R&D, while family control (through voting rights) and family supervision (through supervisory boards) do not have clear effects (Schmid et al., 2014).

In Mandl’s (2008) report, the innovation policy was in the background. We believe that any intervention to increase family business participation in innovation activities should concentrate on helping them in two ways: (1) to manage the family–business relationship in a way that supports the strategic behavior of the firm and (2) to manage family and business objectives and explain that innovation activities are not necessarily risky and do not always threaten family firms’ social, economic, and emotional wealth. These aims are related to the family firm level, and interventions should focus on educational programs (through universities and other institutions) or in-company coaching to help owners to tolerate risk perception and motivate founders and descendants to maintain active managerial roles even after their firms’ initial public offering (Schmid et al., 2014).

Moreover, innovation activities should also help increase and improve the socioeconomic conditions where firms operate in order to strengthen network relationships between stakeholders as a way to support regional innovation systems. This aim requires a spatial dimension that tries to increase family firms’ participation in the socioeconomic structure—that is creating mechanisms to increase the structure and the quality of regional pipelines because cooperation within a dense network of agents is key for innovative strategies at the regional level (Becattini et al., 2003). While cooperation among agents triggers innovation in small and medium firms (Sahut and Peris-Ortiz, 2014), cooperative and trusting relationships trigger innovation in family firms. For instance, family firms are more likely to be engaged in innovation through collaboration within their close networks (forward and backward linkages) than with other stakeholders, such as universities and research institutes (Basco and Calabrò, 2016). That is, the external conditions in which the firm operates should be in line with the family business’s nature, such as its long-term orientation and mutual truth, among other characteristics.

Internationalization

Internationalization is a result of the natural firm-growth process (Johanson and Vahlne, 1977) or of a firm’s competitive behavior since firm’s inception (McDougall and Oviatt, 2000). In a broad sense, internationalization implies a geographical expansion of economic activities over a firm’s national/regional boarders (Ruzzier et al., 2006). Beyond the traditional barriers to entry in foreign expansions for small and medium firms (see Acs et al., 1997), family firms have to deal with their own idiosyncrasies, which requires an understanding of when family firms engage in international activities.

Research has shown that family management involvement negatively influences export propensity, but once the family firm is international both the degree of internationalization and geographical scope in family firms are not significantly different from nonfamily firms (Cerrato and Piva, 2012). One important characteristic of family firms is the role of the family in the internationalization process because such firms’ experience, knowledge, and contacts to be exploited in new markets reside in family members (Colli et al., 2013). For instance, Merino et al. (2014) found that the family experience and its culture orientation positively affect the firm’s export activity, whereas family governance/management does not have any significant influence. Moreover, internationalization in family firms is based on the freedom of managers to shape their business models, exploit business models that work locally in foreign market, and use governance structures based on trust (Colli et al., 2013) and family commitment (Casillas et al., 2010).

The importance of family firm internationalization for regional policy lies in two points: the economic position of the region where the firm’s production or headquarters are localized and the creation of international pipeline knowledge that can stimulate innovation and entrepreneurship and maintain the region’s competitiveness. This is why hosting multinational family firms is crucial to connecting a region with international markets, resources, and knowledge and consequently stimulating local knowledge (Bathelt et al., 2004), regional factors, and regional processes. Regarding internationalization, Mandl’s (2008) report does not consider any possible intervention beyond support service providers to encourage and stimulate internationalization among family firms.

Even though family firms can be included any general intervention policies that encourage internationalization by attempting to reduce constraints to go international (e.g. entry barriers, property rights, and transaction costs of intermediated modes of foreign expansion) (Acs et al., 1997), it is also necessary to take care of specific constraints related to being a family firm. To encourage family firms to exploit their competitive advantage internationally requires recognizing the virtuous circle linking internationalization, innovation (Bannò et al., 2011), and social and economic networks and collaborations (Hessels and Parker, 2013). Cooperation among firms may be an important determinant for supporting family firm internationalization in the long term. Trust-based internationalization is a promising alternative to other forms of internationalization (Fink et al., 2008), in this sense reinforcing stakeholder links can reduce the cost of direct and intermediated modes of foreign expansion and can fit with the long-term vision of family firms. Finally, since the presence of nonfamily members in governance structure has a positive impact on family firms’ pace of internationalization (Calabrò et al., 2016), interventions to support more professional governance and management practices may help family firms to internationalize their operations.

This is in line with the recommendation made by Wright et al. (2007) that investing in networking activities could ensure appropriate resources, knowledge, and learning as a platform for internationalization. It is here where public policy should intervene by including different practices to encourage cross-border trading among European countries and extra-European trade, for instance, by creating programs to engage family firms in cross-border internationalization processes as a first step to going international.

Entrepreneurship

We use the term entrepreneurship in a broad sense, considering not only the process and creation of new firms but also the ability of established firms to discover and exploit opportunities. Regarding the first phenomenon—new firm creation—the family and the family firm seem to play a significant role by sharing resources (e.g. tangible resources, like money; human resources; and intangible resources, like knowledge and support) and by developing positive attitudes toward entrepreneurship (Fairlie and Robb, 2007) among family members. On the other hand, regarding corporate entrepreneurship and portfolio entrepreneurship, the research evidence is less clear that family firms are more able than nonfamily firms to reinvent themselves in order to maintain competitive advantages. Moreover, the current debate in the academic sphere is about to what extent family firms generally assume conservative positions or entrepreneurial positions (e.g. Le Breton-Miller and Miller, 2008; Miller and Le Breton-Miller, 2011; Miller et al., 2008). This brings the debate into the contextual behavior of family firms based on how and when they are likely to take entrepreneurial positions in their strategic behavior.

Regarding entrepreneurship, Mandl’s (2008) report mainly suggests tailoring entrepreneurial educational programs. As we expressed for innovation, any intervention to increase family business participation in entrepreneurial activities should help them in three ways: (1) to manage the family–business relationship in order to support entrepreneurial behavior within the family and the firm, (2) to manage the juxtaposition of family and business objectives in order to deem entrepreneurship an effective strategy to mitigate risks to socioemotional wealth, and (3) to increase and improve the socioeconomic conditions where the firm operates in order to strengthen network relationships between stakeholders.

The first two general aims are related to the family firm level, and any intervention should focus not only on educational programs (through universities and other institutions) but also on encouraging family participation in economic projects as owners, managers, advisers, and lenders, among other roles, for instance, interventions to support family entrepreneurship teams (Discua Cruz et al., 2013) to expand and seek new opportunities within families (with and without firms). The third aim requires taking into account the spatial dimension to increase family firms’ participation in the region’s socioeconomic structure. In order to avoid any possible stagnation in subsequent generations, it could be worth encouraging two actions. One action related to encourage new generation of family to actively participate in associations by creating specific spaces for them. The second action is to encourage family firms to invest in new entrepreneurial projects, which may help new generations (family and nonfamily members) to find economic support, as well as encourage established family firms to invest in new ideas as a way to diversify their investments. Moreover, this action would strengthen network relationships, specifically in soft issues, such as trust.

Discussion and conclusion

The aim of this article was to provoke a debate on the importance of the family business dimension for developing and implementing regional public policy. While the family business research has been more focused on distinguishing family firms and nonfamily firms based on the family’s effect on the firm (i.e. firm familiness) rather than explaining the importance of the family firm in the regional context, the regional development research has failed to explain the effect the family business dimension (i.e. regional familiness) has on economic growth and regional development as endogenous factors. This disengagement has created an empty space in regional policies that family business lobbies around Europe have used to introduce interventions related to tax reductions and educational programs about ownership and management succession without really impacting on regional development.

We believe that the importance of the family firm in Europe goes beyond the overrepresentation of family firm as a form of organization. Of course, we are not denying the value of the family firm as an actor, but we are extending this point of view by considering that the presence of family firms and the type of family firms may create specific characteristics at the regional level that affect regional development. In this sense, we built our arguments following the regional familiness model developed by Basco (2015) and considering that family businesses’ effect on regional development can occur at the firm (i.e. firm familiness because of the interaction between family and business systems) and regional levels (i.e. regional familiness because of the interaction among family firms, regional factors, and regional processes). Moreover, we argued that a focus on firm and regional familiness dimensions can shift public interventions away from a restrictive and direct position based on the object itself (i.e. the family firm) to a more holistic and broad perspective by considering the context in which family firms are embedded.

Specifically, if the Europe 2020 strategy attempts to achieve smart, sustainable, and inclusive growth through its regional policy, the firm familiness and regional familiness dimensions should be considered in their initiatives to develop and implement interventions to strengthen firm competitiveness and regional competitiveness in five dimensions: survivability and longevity, firm growth, innovation, internationalization, and entrepreneurship.

Moreover, by using the existing research about family firms, we proposed possible paths for interventions to strengthen the familiness characteristics of firms and regions. This is important because failing to recognize SMEs’ diversity can hinder the European Union’s ability to achieve certain strategic goals set out in the Europe 2020 strategy and may reduce the positive impact of the allocated public funds for regional development.

This research has several contributions. First, we attempt to extend the current debate about the role family firms play in regional development by adding a policymaker perspective. So far, the European Union has been obsessed with innovation and entrepreneurship for regional policy but has omitted familiness aspects of firms and regions. Therefore, we think that future interventions should account for familiness characteristics to leverage economic growth and regional development. We showed that “one-size-fits-all” policies regarding firm familiness and regional familiness do not solve firm competitiveness and regional competitiveness problems in the European context. Second, even though this article opens an important debate for regional policy, it is not exempt from limitations. For instance, the empirical evidence relating family business and regional development is scarce, and there are a lot of questions without answers: What does regional familiness mean exactly? How should we measure regional familiness? How does regional familiness affect regional development? Under what conditions can firm and regional familiness really affect regional development? How is it possible to activate firm familiness and regional familiness?

Footnotes

Declaration of conflicting interests

The author(s) declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.

Funding

The author(s) received no financial support for the research, authorship, and/or publication of this article.

Notes

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