In the Name of the Family! Firms with CEOs under clan culture influence are much more likely to be internationally focused

In an increasingly globalised world, it is incredibly rare that a firm can expect to grow in the long-term unless it becomes more internationally focused. Local markets only allow firms to go so far, and with globalisation and advancing technologies making it easier to reach international customers, and with reduced shipping costs to smooth the path, firms anywhere in the world are able to extend beyond their geographical borders to consider operating internationally in their future.

Yet, for many, developing long-term global expansion strategies is a difficult ask. Rising inflation, increasing impact of climate change and geopolitical tensions are all impacting the day-to-day of many businesses, making it difficult to forecast and make plans for the long-term, especially when breaking ground in new and unfamiliar territories. As a result, many CEOs are risking long-term growth for short-term success in order to please shareholders and the board, and to keep their jobs.

However, some firms might struggle less in their international outreach efforts than others – for those that have a CEO with a clan culture background the context is much different. Clan culture describes a collective philosophy among households originating from natural blood based of the same common ancestor. CEOs with this clan culture have a strong sense of working in the name of their enduring family and hence a long-term orientation. Effectively, these CEOs, like other clan members, prioritize the long-range implications and effects of decisions that come to fruition after an extended period.

Xinming He

And these attributes seem to bring great stability and opportunity to be brave. From research I conducted, alongside Professors Feifei Liu and Tao Wang, both of Wuhan University, we found that clan culture firms are much more likely to be internationally-focused, even in today’s business environment.

To conduct the research, we analysed a sample of 285 publicly listed Chinese firms from 2012 to 2018. The data included the CEO’s characteristics; such as the family they came from and their location. We also reviewed the business decisions made by these firms as to whether to work internationally or not, comparing their overall income to the percentage that came through international activities.

In doing so, we found that clan culture CEOs were much more likely to be internationally-focus in their efforts, identifying three key reasons as to why this was the case.

Firstly, they have a long-term focus. Whilst international strategies can be risky in the short-term, they are likely to have longer-term benefits, which clan CEOs can be more proactive and committed in strategic analysis and planning in pursuit of future returns and long-term performance with more tolerance of short-term losses.

Secondly, CEOs with a long-term outlook also value resilience. If a firm simply has a local outlook, then shocks and downturns in their country are likely to have a greater impact upon them. However, if a firm operates more internationally, they are much more likely to be able to mitigate risk and build resilience to country-specific shocks by focusing on, and leveraging the activity of their overseas markets.

Thirdly, clan CEOs are more likely to secure support from stakeholders, including shareholders, suppliers, and distributors, due to the greater sense of stability and reliability and the increased trust given to them, which can help them secure support for internationalisation plans.

We also found that the domestic market, as well as the economic policy in their home country, can also impact how internationally a firm chooses to operate. When the domestic market is intense, internationalisation becomes more appealing to CEOs, whereas when economic policy at home is uncertain, firms take a greater focus in their short-term, local efforts.

These findings have important implications for firms, boards and policy makers, not least in highlighting the importance and value to be gained by selecting a CEO whose managerial style matches the firm’s culture and strategic targets, if internationalisation is a key focus of a company’s future plans. Most importantly, for shareholders, when selecting a CEO, they should opt for one with a clan culture background who values long-term orientation when the domestic market competition is stiff, and the economic policy is not uncertain.

And for policy makers there is also much to learn. Our findings showcase the importance of internationalisation too, indicating that policy makers should look to provide and maintain a predictable and reliable environment for businesses to thrive in. Such efforts may help CEOs with stronger clan culture background to make international efforts, as well as boosting the market potential for other firms both at home and further afield to find prosperity.

 

Bio

Xinming He is a full Professor on international strategy, and Lead of the Marketing and International Business (MIB) Research Centre at Durham University Business School. His  current research aims to examine how organizations develop international strategies such as digitalisation, international market selection, export channel selection, pricing, innovation, and overseas acquisition to achieve superior performance.

spot_img

Explore more