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Internationalisation strategies of Italian SMFB. The cases of Romcaffè and the National Service Company

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Internationalisation strategies of Italian SMFB. The cases of Romcaffè and the National Service Company

 

 

 

 

Internationalisation strategies of Italian SMFB.

The cases of Romcaffè and the National Service Company.

 

 

 

 

 

DISSERTATION

of the Regent’s University, London

Submitted by

Pietro Camilli

from Italy

Approved on the application of

Dr. Rebecca Fakoussa

 

 

 

 

 

 

 

MA Management with pathway in International Business

 

2016

 

Table of Contents

 

 

1. INTRODUCTION........................................................................................................................... 3

1.1 Family businesses in Italy and succession planning..................................................................... 3

1.2 The reasons and objectives of Internationalisation ..................................................................... 4

1.3 The entry strategies in foreign markets ....................................................................................... 5

1.3.1 Export.................................................................................................................................. 5

1.3.2 Strategic agreement with complementary or competitor companies ..................................... 6

1.3.3 Entrance through opening of a production plant .................................................................. 7

1.4 Research question, aims and objectives ...................................................................................... 7

 

2. LITERATURE REVIEW ............................................................................................................... 8

2.1 Understanding family businesses in Italy and Internationalisation............................................... 8

2.2 The role of CFO ....................................................................................................................... 11

2.3 Succession planning ................................................................................................................. 12

2.4 Internationalisation strategy in developing countries ................................................................ 13

 

3. METHODOLOGY ....................................................................................................................... 16

3.1 Family businesses in Italy and succession planning................................................................... 16

3.1.1 Positivism........................................................................................................................... 16

3.1.2 Phenomenology ................................................................................................................. 16

3.1.3 Philosophical approach of this research: Phenomenology ................................................. 17

3.2 Choice of methodology ............................................................................................................ 18

3.3 Choice of research framing ...................................................................................................... 18

3.4 Marche’s SMFB’s and two case studies .................................................................................... 19

3.5 Data collection ......................................................................................................................... 21

3.5.1 Secondary data .................................................................................................................. 21

3.5.2 Primary data ...................................................................................................................... 21

3.6 Data Analysis ........................................................................................................................... 24

3.7 Limitations ............................................................................................................................... 24

 

4. FINDINGS................................................................................................................................. 25

 

5. CONCLUSIONS........................................................................................................................ 26

 

6. REFERENCES........................................................................................................................... 26

 

7. APPENDICES …………………………………………………………………………………………27

 

 

 

Abstract

 

Family businesses in Italy represent the heart of the national economy.

The purpose of this dissertation is to analyse the importance and significance of SMFB’s through various opinions and arguments put forward by international authors. The importance and meaning of the generational process is evaluated and the different strategies that family businesses use to enter foreign markets is analysed.

The literature review will explore the current understanding of family businesses in Italy and the meaning of internationalisation. The importance of the CFO’s role within a company will be explored in the context of succession planning.  The various strategies of internationalisation will be reviewed using specific examples.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acknowledgements

 

I would first like to say thank you to Dr Rebecca Fakoussa for her unwavering support and for her availability during the writing of this dissertation. Her in depth knowledge regarding family businesses, the generational process and the internationalisation  process has been a source of motivation.

I would also like to say thank you to the participants in the interviews for giving me as much information as possible about their companies and to my family who have supported me throughout this process.

To my friends who helped during difficult times and most of all to my grandfather who, although no longer alive, would have been very proud. Finally, because this dissertation is about Family businesses, it would be pertinent to conclude with a famous citation by Winston Churchill

“Many people see private enterprises as a ferocious tiger, to kill immediately. While others, like a cash cow. Very few see it as it is in reality, a robust horse, silent, towing a heavy tank.

 

 

 

 

 

 

 

 

 

 

 

  1. INTRODUCTION

1.1.      Family businesses in Italy and succession planning

 

It is estimated that there are approximately 784,000 family run businesses, (SMFB’s), in Italy, (aidaf.it, 2016). This amounts to over 85% of the total number of companies in the country. Comparably France has 80%, Germany 90%, Spain 83% and the UK 80%.

 

According to Gordini, 2016, “in terms of geographical area, 41.2%, (260 companies) are from the northern part of Italy, 32.9%, (207 companies) reside in the centre and 25.9%, (163 companies) are based in the south”, (Gordini, 2016, pg. 4). As far as business sectors are concerned, 33.5% of Italian family business relates to the manufacturing sector, 36.7% to retail and 29.8% to the service sector, (Gordini, 2006).

 

Dell’Atti (2007), argues that one of the issues that arises for Italian family businesses which is perhaps the most delicate to be addressed is that of succession planning be it voluntarily or upon death of the entrepreneur-founder. According to Dell’Atti (2007), in many cases, Italian family businesses are not successful in succession planning and the result is that they go out of business or they lose market share/revenue around the World. For Dell’Atti (2007), the ideal situation would be to predict and schedule it, as you would do for any business function.

 

What then are the main obstacles that inhibit starting this process?

According to Montecamozzo (2012), the most obvious are psychological-cultural reasons such as:

 

  • The inability of the entrepreneur founder to be aware of his or her mortality causing procrastination.
  • Staff turnover.
  • The difficulty in passing over control of what has been created over many years of work.
  • The perception that the planning succession is a matter of discontinuity in the life of the company.

 

1.2.      The reasons and objectives of Internationalisation

 

Montecamozzo (2012) explains that there are possible solutions that could help family businesses to continue their business and one of these is to adopt strategies of internationalisation . The word internationalisation  means those processes through which companies invest in foreign markets with the clear aim to conquer progressively local market share. Internationalisation by contrast is where family businesses see a future in other countries where the economy is growing and decide to invest money there to potentially gain a market share and increase their revenues.

 

During the process of internationalisation , family businesses must take into consideration a series of variables; the first one is market choice where there are several important factors such as the main macro-economic variables, GDP, inflation and international trade performance.

 

In recent years, developing countries have experienced steady growth rates in both GDP and international trade due to a strong increase in exports and imports. Moreover, the steady rise in the average per capita incomes of local people has led them to be high-potential consumers. Finally, the company must take into consideration a careful analysis of the level of development of the market segment in which its production ranks. Some sectors present a higher degree of saturation versus other markets.

 

The fact that the Italian fabric industry is mainly characterised by small and medium businesses consequently affects the strategy of internationalisation that Italian industries are able to implement. Often, influenced by this factor, many industries decide to internationalise themselves solely because of potential investment opportunities that could arise, rather than having a dedicated strategy of short-medium period implementation based on the knowledge of managing the process of internationalisation.

The lack of a precise strategy, can sometimes, negatively influence what the industry wishes to achieve. Indeed, the lack of coordination between internal and external activities often involves an unavoidable increase in the costs which could consequently nullify the potentially achievable profits of internationalisation.

 

Beyond the will to take advantage of overseas markets, another factor of wanting to internationalise is the researching of new end markets, since the present market of the industry is potentially becoming too limited or is starting to show signs of market saturation.

New market research is easily suited to satisfy the purposes of an industry, regarding its growth through the sales of products characterised by competitive advantages such as its assets and its expertise. Finally, another major factor that drives businesses to internationalise is the low cost of the raw materials, as well as the comparatively lower costs of the labour force.

 

Those markets offer huge potentiality, both in terms of potential future customers and in geographical terms. Indeed many of those countries could form future logistical platforms and production centres quite important for the exports.

 

1.3.      The entry strategies in foreign markets

 

The strategy choice to adapt will rely on the specificity of the business, of the industry itself and the characteristics of the market segment in which it works. The industry should bear in mind the peculiarity of its present and potential customers, the characteristics of the distribution channels of the chosen countries and of its coordination ability between the various productive activities. Furthermore, the level of involvement a business is willing to take on should be considered.

 

Export, for example, represents one of the forms with less involvement and more flexibility; this strategy prevents the company from getting in touch directly with the market and with the client versus direct investment (FDI) which requires more involvement from the company and a higher investment.

 

The modes of entry through which a company can enter a foreign market are three: export, cooperation with one or more local employees, or the establishment of a production site, (Valdani and Bertoli, 2006)

1.3.1.      Export

 

Direct or indirect export are the most common entry modes used by family businesses as both production and the development of human resources remain within the country of origin. This channel is the most common because it requires less investment and entails less economic risk. With direct export, the company sells in foreign markets through its own sales structure so export management occurs through a series of direct contacts with local companies and a more control and power over international operations. In addition, this strategy helps ensure the achievement of commercial and strategic objectives (for example, the spread of its brand).

The modes of realisation for this type of internationalisation require a long strategy formulation and the constitution of a perfect organisation. According to Valdani and Bertoli (2006), some of the most common direct export modes are:

-      Sales networks for the foreign country

-      Sales agents

-      Commercial subsidiaries abroad

-      E-commerce

 

Exports can occur indirectly when the company maintains production in his country of origin and therefore does not directly manage commercial operations in foreign markets but uses an independent operator placed in the foreign country. In this way, the company that exports, transfers costs and risks of the export process to the brokerage society. The main advantage of this method is that the company can export to expand their businesses abroad without risking significant investments nor face too many changes in the productive and organisational process.

 

Indirect export can be utilised in different ways such as:

-      Buyer

-      Exporting companies

-      Trading company

-      Export management company

(Valdani and Bertoli (2006)

1.3.2.      Strategic agreement with complementary or competitor companies

 

These agreements represent an entry strategy into a foreign country that facilitates the companies to obtain advantages that would otherwise not be obtained as a single entity. These benefits are mainly identified in the exploitation of complementarities between the partners. Collaboration with a foreign company has many positives such as investment sharing in the opening of a production plant abroad, immediate access to resources, the potential to achieve adequate levels of efficiency in less time and more general cost reduction advantages.

 

Strategic agreements allow costs and risks to be shared between the different companies, which can result in a lower economic and financial commitment compared to alternative entry modes. There are different types of agreements that stimulate the creation partnerships; below are the most important:

-      Franchising

-      Licensing

-      Joint Venture

(Valdani and Bertoli, 2006)

 

 

1.3.3.      Entrance through the opening of a production plant

 

The opening of a production plant is aimed to develop products to be placed in the country where the settlement itself is located. The reasons for this strategy are threefold:

-      the ability to have a direct presence in a foreign country.

-      the ability to take advantage of opportunities made available by the public operator.

-        the possibility of having cost advantages.

 

Firstly, the decision can be influenced by a number of factors arising from government intervention in terms of attracting international investment and stimulating the process of settlement for foreign companies. Secondly, the company can decide to open up abroad simply to obtain an increased presence in the foreign market or to pass a number of limitations related to exports as an entry mode. Opening a production plant can on the other hand have disadvantages in that it involves very high initial investment, high operating costs, high fixed costs that require appropriate production volumes to cover the margins. Qualified personnel are ultimately required for the management of the new production plant and these personnel may not always be readily available. The opening of a production plant abroad can be done through the establishment of a production plant called "greenfield" or through acquisitions and / or mergers of structures. The acquisition enables a faster entry into the selected market as it is exploited a well-known brand and guarantees access to distribution channels and customers.

1.4.      Research question, aims and objectives

 

The purpose of this dissertation is twofold: firstly to outline the importance and the meaning of family businesses in Italy and their importance for the economic growth of the country. Secondly, to identify and explain the different processes of internationalisation that may be adopted by family businesses to help them sustain their growth into foreign markets or it is has simply become a survival necessity for the sector in which they operate. Various strategies are analysed.

 

Globalisation has led to a competitive division of market share where multinationals and solid groups dominate; for this reason internationalisation may be a logical option for these companies to be more competitive and remain in the market as leaders. The analysis will support a better understanding of the internationalisation process evaluating different strategies that can be used by Italian family businesses.

 

Research Question

RQ.1- How do SMFB’s in Italy internationalise?

The main objectives of the study are as follows:

  • To define and understand the importance of family businesses in Italy.
  • To establish a base idea of the importance of succession planning in family businesses. 
  • To define” Internationalisation “and to examine strategies adopted by companies.
  • To analyse two Italian family business and form these into case studies.

 

 

 

 

 

 

 

 

 

 

 

  1. LITERATURE REVIEW

 

2.1.      Understanding family businesses in Italy and Internationalisation

 

 

Gersick et al., (1997) posed an interesting question, "If family businesses are so common, how can they also be special?" For many people the two most important things in their lives are family and work so the importance for these businesses is understandable.

 

“To be considered a family businesses, the founder or a member of the family by either blood or marriage must have at least 20% of the company’s equity (Shleifer and Vishy, 1986), must be a CEO or a general manager of the enterprise, actively participating and the ownership will most be passed to heirs”, (Gordini, 2016, pg. 4).

 

According to Sciascia & Mazzola, 2008, a family company is where the family has control of the business through important engagement in ownership and management positions. SMFB’s make up approximately 85% of all small and medium sized enterprises in the EU and the USA. Family businesses are represented in all continents and are a key component of Europe, not only in terms of their prevalence but also for their contribution to GDP and employment (Poza, 2013).

 

There are three subsystems that constitute the family business: the family, management and ownership. In many SME’s these three subsystems can overlap because family businesses can be referred to as a "house" where the board is made up of family members.

 

Regarding family businesses, some things have changed over the years. In past decades, SMEs were said to exhibit an ethnocentric attitude but this attitude has changed in recent years. In the opinion of Perlmutter (1969), an ethnocentric attitude is where the management vision of a company is oriented towards the country of origin; this involves a complex form of organisation in the country of origin as opposed to an organisation less structured in foreign subsidiaries and the allocation of decision-making powers to the headquarters. Corbetta (1995) believes this attitude was supported and partially replaced by a geocentric attitude. This implication was that a company has a world-oriented mindset where the leaders have an open mind and cannot identify with either the country in which they operate nor with that of the country of origin.

 

Perlmutter 1969 states that in this type of responsibility, companies are assigned according to the quality of the managers and not by nationality and consequently the communication between parent and subsidiary is bidirectional with a strong interdependence between the peripheral units that work together. Zucchella (1999) argues that Italian SMEs often choose to produce a uniformed product for a niche market or a product adapted to the needs of each customer focussing a customer-oriented strategy rather than market oriented approach.

 

Whereas before an ethnocentric attitude reflected a gradualism process towards internationalisation, today, Italian family businesses have the courage to enter foreign markets directly through different forms of internationalisation as will be discussed. More complex however is the issue regarding the relationship between internationalisation and the familiar character of the Italian SMEs; studies are still very limited and the field is largely unexplored. Studies conducted by Ensley and Pearson, 2005, show that Italian family businesses tend to have a defensive strategy adopting a risk averse attitude by refusing the decentralisation of the decision making power.

 

A study by Demattè, 2013 concluded that there is a positive relationship between family business and internationalisation. Internationalisation is a process of deep change that involves entering into new markets to gain experience competing with new competitors. Therefore, for a family business to succeed it must be willing to change some of its fundamental structures. Based on the strategic management model presented by Hax and Majful, 1984, there are five factors that can affect the ability of the company to change. They are the strategy and objectives, structure and organisational systems, corporate culture, the development stage and the international characteristics of the family that manage it. These factors are closely linked together and cannot be taken into consideration individually.

Regarding strategy and objectives, Italian family businesses often adopt a niche strategy in local markets and. That means to expand throughout a country focussing on a single business concept, on the capacities, on the family culture and the relationship with the customer.

 

From this, it is possible to deduce why there is a reluctance of family businesses to expand into new international markets because it would mean going beyond national borders to serve new niches and new markets. This aversion to the process of internationalisation is also due in part to the reluctance to adopt new technologies that were previously not indispensable to the company but now become very important for the company’s future.

 

Many of the factors that can prevent internationalisation can be found in the organisation of the family business; the Italian family business is often governed by family members in that frequently the company does not have sufficient skillsets to call upon. Finding a new manager with international  skills is often difficult and expensive. Nevertheless, there are other factors regarding business organisation which are positively correlated to internationalisation. Family members are often known to be charismatic characters and lead in this style. This is advantageous especially in the early stages of the process a strong motivational drive is needed. When a new member of the family enters a company in the situation where there isn’t an available position, in theory this person could start to work with new markets.

 

The character traits of the family are important. It can be argued that it is fundamental to have family members who have a positive attitude towards internationalisation from the start. This can be achieved by motivating the people who work in the company to speak another language or to encourage them go to stay in foreign countries.

 

By analysing the five factors mentioned above, one thing it is clear: Italian family businesses are more adverse to the process of internationalisation compared to non-family orientated company’s. Despite this adversity, the generational process in a family company may be the right time to start the process of internationalisation but some factors must be present. The new entrepreneur must have the willingness to innovate and must have good managerial abilities that allow him to face changes and challenges dynamically.

 

2.2.      The role of CFO

 

The role of CFO in SMFB’s is becoming more and more important despite it being less common in Italy versus the rest of the World especially in the UK. Currently in Italy, this role is not well established. This is due to it being a role that is usually undertaken by a general director who typically has multiple roles within the company. The role of the CFO is very important for company performance and above all, for the generational change process. This will be explained in the next chapter.

 

An article written by Niccolo Gordini, an Italian professor of management, analysed the effects that a CFO has on SMFB performance. The research underlined how firstly a non-family CFO has a positive effect on company achievement. Secondly, how the best performance levels are achieved when the CEO has a family component and the CFO is a non-family member. Thirdly, through generations a non-family CFO brings positive things to the company and reduces the consultancy costs, (Niccolo Gordini, 2016).

 

The founder of a SMFB generally has the entrepreneurial competence to enable the company to succeed but sometimes lacks the necessary financial knowledge. Moreover, this person typically does not have a direct relationship with banks in order to obtain credit successfully. In this case, an external CFO can bring financial knowledge and directional skills to the company. This has tangible benefits in terms of having greater access to capital markets, to facilitate a stronger financial structure and potentially more streamlined access to credit.

 

Aronoff, 1998 suggests differences between first generation and other generations in SMFB; in the first generation, everything is under the founders’ control, “the powerful influence of the founder on business development present in the first generation family businesses”, (Brun de Pontet, 2007).

Furthermore, the founder is able to contribute during the generational process, giving to the heirs’ advice on company operations.

 

Lanseberg, 1999 explains that the company’s structure changes after the first generation; the generations after must have more knowledge and a wider range of competences in order to face future challenges. Caselli, 2010 argues that the heirs of the company have less expertise than the founder, which can potentially damage company performance.

 

Therefore, a possible solution to resolve the generational process could be to employ an external CFO who is able to provide knowledge and financial guidance to the company. This can help heirs during the generational process whilst benefitting the company in that the ownership and the management structure will remain under the family control.

 

 

2.3.      Succession planning

 

“Companies are born with families, all, and then we have to see how long they last", said Gianni Agnelli, founder of Fiat, (Online Publishing, 2002). The correlation between family businesses and the generational process is an issue of great interest and importance that involves a good part of the Italian economy. In Italy, 92% of companies are family businesses, just 50% pass the second generation stage and only 15% go beyond the third; according to a common Italian saying: “the first generation creates, the second increases and the third destroys”. Furthermore, only 35% of family businesses maintain the same business premises from first to second generation. From second to third generation the percentage drops to 15%, (Manzone, Trento, 2000). This is bad news if you consider that recent studies and statistics both national and international show that family businesses produce a higher profit compared to Public Companies, (Davis & You, 2007).

 

According to Manzone (2000), succession planning in family businesses is a crucial step in the life of a company because it involves the transfer of real wealth of knowledge and management skills, acquired through years of experience to the next generation. In Italy, nowadays more than 60% of Italian entrepreneurs are over sixty years old meaning that their companies will have to face a generational shift in the near future. Around 70% are believed to want to leave the business to a family member while a significant percentage are said to be reluctant to give up their role altogether. Only 25% of businesses are likely survive to the second generation of entrepreneurs and as few as 15% to the third (R. Bianchi 2015).

 

Lobraico (2011) logically states that the will of the owner to leave the company to his successors is high because in most cases, it has taken many years of blood sweat and tears to develop the business and it would be distressing for it not to continue. The company is often seen by the first generation of entrepreneurs as a source of employment for family members who are assigned positions of responsibility regardless of adequate skills or competency. This factor has the potential to result in a deterioration of business performance because the new generations don`t have a comparable level of knowledge or experience. Another factor recognised by Bianchi (2015) suggests that the union between old and new generations can cause conflicts within the management structure and harm business dynamics.

 

In the succession of family businesses, it is important to introduce elements of rationality in decisions in order to have a distinction between familiar reality and the company; considering the inclusion of the successors according to criteria based on preparation, maturity, responsibility and motivation. When considering family successor requirements during the generation process, Moog (2014) analysed data extracted from 106 interviews with 53 families. Based on ancestors’ expectations and heir’s perceptions of conditions that the next in line must fulfil in order to be considered suitable successors, three different aspects emerge; hard skills and soft skills are equally appreciated. Predecessors have a tacit understanding of family successor preconditions, indeed they often leave potential heirs in the dark regarding their belief. Moreover, it could be perceived a systematic order of and importance ranking attached to predecessors’ expected expertise that closely overlap with scholarly guidance. Therefore, the process of recruiting and selecting family successors is methodical and well organised.

 

2.4.      Internationalisation strategy in foreign countries

 

Why does a company decide to adopt a strategy of internationalisation? The answer seems to be obvious: to increase profits and reduce costs. With globalisation and the increasing levels of international competition, Italian companies are being forced to increase their presence abroad if they want to remain in the market. For example, a company that wants to increase its market share abroad to use the excess capacity in order that increases sales and optimise production. Companies increase profits through sales in international markets because sometimes the same product has a higher profit in another market because of its lifecycle. Italian companies can reduce risks across international markets because of diversified assets and distribution of risk.

 

According to Ranfagni (2012), the decision to internationalise, is both difficult and complex since the process requires companies to make many changes in various aspects of the business such as structure and organisation, market position, financial planning, human resources and production capacity, etc.

 

An International Survey produced by the Italian Industrial Union showed that Italian companies have expressed an interest in internationalisation . Particularly to China and India due to the enormous potential of their respective markets. Brazil too is widely regarded given the major sporting events it will host in the coming years. Turkey is cited as being of interest due to its strategic location, which makes it the "front door" to the wealthier parts of the Middle East. Political instability in that region may act to dampen enthusiasm in the short term. 

 

Among the conditions that have attracted the attention of Italian family businesses to these countries is favourable labour conditions. The legal working week is longer in places like Brazil (42-44 hours) and India (48 hours). Average hourly labour costs are as little as 2.2 €/h in China, 1.2 €/h in India, 8.1 €/h in Brazil and 9.6 €/h in Turkey, (Confindustria nazionale, 2011).

 

Companies that want to internationalise must meet two important requirements as the reason (why) and the manner (how) according to Montecamozzo 2012. The theories about internationalisation  are many and scientific approaches are very different. According to Kauda and Sorasen (2000), theories and internationalisation models can be classified into three main categories: stage models, contingency models and models of action and interaction.

 

These three types of models have important differences both in the point of view and in the interpretation of the internationalisation process. As a first approach, an objective market vision can be distinguished from a subjective one. In an objective vision of the world market, the implication is that the company assumes that the world market and the international market exists independently and separately from companies. Furthermore, this approach assumes that the world market obeys the laws and principles of the natural market, (John Kauda, 2000).

 

In particular, an objective view of the world market implies that the company assumes that the international market exists independently and separately from the business; furthermore, this approach assumes that the world market obeys the laws and principles of the natural market. A subjective view of the world market by contrast implies that the theory assumes that the world market is a social construction created by actions and interactions of individuals who do business. This vision assumes that there are no behavioural laws that can be united and each individual event is unique. They are relevant actions, reactions and perceptions of each company that is seen as an individual.

 

In terms of prospects, you can differentiate between a static and a dynamic approach. The static approach assumes that the theory proposes a snapshot of the situation while the dynamic approach proposes different snapshots of the market situation at different times. Sorasen (2000) believes that internationalisation theories can also be grouped according to the fact that they devote more attention to the activities of the action plan and management or who devote more attention to the actions and experiences of those who run the company.

 

 

 

 

 

 

 

 

This main difference is evident in the comparison between a planned approach and approach to orientation activities

 

Scientific approach

Stage model

Contingency model

Action  and interaction model

Objective market vision against Subjective

objective

objective

objective

Dynamic perspective against static perspective

static comparisons at each stage

static

dynamic

Planning against oriented actions

planning

planning

interaction

 

 

 Source: Kuda - Sorensen, (2000).

 

 

 

 

 

 

 

 

  1. METHODOLOGY

 

3.1.      Philosophical choices

 

It is significant to outline the philosophical approaches behind research activities because these define the research design.

The two most important philosophical methods are phenomenology, commonly referred to as the deductive approach, and positivism also known as the deductive approach. Both of these approaches are used by researchers to support their selection of research design.

The two approaches are different in terms of the procedures and research methodology. The aim is not to determine which the better method between both is but to define which could be the best design that is more appropriate for the research.

3.1.1.      Positivism

Easterly. Smith (2000) states that “the key idea of positivism is that the social world exists externally and that its properties should be measured through objective methods rather than being inferred subjectively through sensation reflection or intuition”.

This method is a rational process that derives a certain conclusion from more general premises in which that conclusion is implicit; is an approach that starts from the first postulations and principles, through a series of rigorous logical concatenation proceeds to more specific determinations relating to tangible reality.

The positivism paradigm means that supporters have to follow a deductive method of conducting research.

 

 

 

 

3.1.2.      Phenomenology

A contrasting approach to the positivism deductive method is the phenomenological inductive approach. In the phenomenological method: ‘The world and reality are not objective and exterior, but that they are socially constructed and given meaning by people” (Easterby -Smith 2000).

The phenomenology approach delineates the world point of view of the Italian family businesses and the different strategies of internationalisation. A positivist method by contrast would begin with assumptions of the viewed world. The table below shows the differences between the two philosophical methods. 

Table 1                          

The phenomenological approach (Inductive)

The Positivist approach (Deductive)

Principles

  • The world is social built
  • The examiner is part of research procedure
  • Science is based on value

Principles

  • The world is external
  • The examiner is independent of research
  • Science is value free

Research aim

  • Have attention on the definition  human attach to situation
  • Understand phenomena
  • Elaborate theories and ideas

Research aim

  • Have attention on facts
  • Measure phenomena
  • Compose hypothesis

Research method & design

  • Managing multiple perspectives
  • Selecting small samples
  • Inductive and qualitative

Research method & design

  • Managing ideas
  • Selecting large samples
  • Deductive and quantitative

 

    Source: Easterly-Smith et al. (2000)

 

 

3.1.3.      Philosophical approach of this research : Phenomenology

 

The phenomenological approach moves from the study of sensitive experiences to arrive at a general and universal definition.

This method, (inductive) is the most appropriate way to explore and study the topic of this dissertation and to answer the research question. This is because unlike the deductive research method it provides a clear logical process that consists of deriving information from particular observations and experiences while following some implicit general principles that permits the generation of hypotheses and empirical generalisations.

With this method, it is possible to proceed to the observation of facts, information, events and specific cases and to be able to make assumptions that are best able to explain the phenomena under study. In this case, initially there is an explanation of what family businesses are and why they are so important in Italy.

 

3.2.      Choice of methodology 

 

The approach used for this dissertation is qualitative.

According to Creswell (2014), qualitative research allows you to learn a certain subject in depth and this method is especially useful when you want to investigate complex issues such as family businesses in Italy and the strategies of internationalisation .

A significant advantage of using this method is the potential data richness and wealth of information that can be collected. The biggest obstacle is the choice of how to collect information and how to deal with the raw data. Qualitative research method is about three elements. Firstly, it is the understanding of the phenomena in terms of how people take acknowledge of the circumstance.

It is a flexible method that permits direct contact with the managers or owners of companies. Lastly, all the efforts of this method terminate in qualitative findings where the student reinterprets the information gleaned from the interview process. The method choice was made in order to gain knowledge from two Italian companies that have already internationalised and to evaluate the range of strategies they have adopted.    

3.3.      Choice of research framing

 

The design chosen for this dissertation is a case study that according to Kourti (2015) is a form of descriptive research that consists of a detailed investigation, often with data collected over a period.

A case study has three aims: descriptive, exploratory and explanatory (Yin, 1994). Research design based on case study is extremely useful for understanding complex issues or situations and can help to reinforce what you already know by experience or through past research. The case study is focused on detailed analysis in the context of a limited number of events.

This dissertation is based on a double case study so that internationalisation strategies of two different companies can be compared and considerations can be made. The aim is to put into practice the theory behind family businesses and internationalisation  via two different case studies.

When the border between the study of the phenomena and the circumstance within it is analysed is unclear, Yin (2003) points out that case study research is a suitable procedure to adopt because it consents to the research to look into a present phenomenon inside its real life circumstances. Furthermore, “Case studies are appropriate to use when the research concerns questions about how and why, as is the case in this study. Case studies therefore help to identify and to understand the more complex issues that underlie phenomena, providing an in-depth view of a specific situation or context rather than a statistical overview or cross-section of a large category of subjects”, Rose (1991).

“The key advantage of employing an interpretive, case study, based approach is that it recognises the individuality and intricacies that are inherent characteristic of individual business situations, and allows these complexities to be drawn out and explored further”,(Saunders, 2003).

 

3.4 Marche’s SMFB’s – Two company case studies

Case Study choices

The decision to focus on the two companies in question was taken primarily based on access to information. Not all businesses are accessible or wish to divulge in inner workings of their business, particularly where succession planning is discussed as this can be potentially regarded as quite delicate or a subject they simply wish to avoid discussing. The business selected for this dissertation are not nationally as famous as the businesses previously outlined. They are however extremely well regarded for their high quality and professionalism. Both businesses fit the criteria “the importance of family businesses in Italy and the different strategies of internationalisation”, and they are both regarded as being regionally important in Marche.

The first company is called Romcaffè which is based in Macerata. The company has been producing high-quality coffee since 1925.  The second company is called the National Service Company, (NSC). It was founded in 1985 and is specialised in the provision of services for the oil sector, in particular drilling and dealing with emergencies when gas drilling wells are on fire. Both companies are wholly owned by the family and have been active in international activities for a long time. They have both permitted access to data collection.

3.4.      Data collection

With this topic, it is recommended to use both secondary and primary research techniques. Primary data is collected directly by the researcher and is obtained by doing surveys, observations and interviews.  Secondary data collection is conducted by reviewing annual reports, business magazines and relevant documents, (Yin, 1994).

3.4.1.      Secondary  data

This data is readily available for review. RUL discovery and google scholar will be used to gather data regarding the family business, generational processes and the strategies of internationalisation. Journals, books, newspapers, websites and various articles about the specific topic will also be reviewed.

3.4.2.      Primary data

The aim of the qualitative interview is to understand how these interviewees see the world, learn their terminology and their decision making rational.

The primary objective of the qualitative interview is to provide a framework within which the respondents are freely able to express their opinions in their own words, (Patton, 1990).

In this case, a semi-structured interview for both companies was used. A sequence of questions were predesigned to ensure the interviewee was comfortable to answer questions primarily, before quite specific and targetted questions were asked.

Interviews were organised with the managers of the companies whose role it is to deal with internationalisation and with the two business owners. It was assumed that the most important interviews would be with the founders of the businesses, given that they are the source from where the business has originated.

The process of simply arranging interviews was complex in itself. Many key personnel travel abroad with great frequency or are not regularly available in the company headquarters. The interviews were organised through the assistance of family friends to find an optimal time when the key people would be available. The interview process took place directly in the headquarters and lasted in the region of 45 minutes each.

 

 

 

3.6.      Data Analysis

 

Data analysis is the “process of systematically searching and arranging the interviews transcripts”, (Boeije, 2010).

The steps of this procedure follow a certain method of scheme:

-      Data collection

-      Operation of synthesis

-      Deduction of information

In this part, the results of the analysis are shown. Firstly, there was the collection of all the information taken from the amended transcripts, which were then prepared in order to answer the questions posed. An important aim motivated the accumulation of the data and the data analysis; the goal was to form a clear coherent understanding of the two family businesses. The next stage was to analyse the strategies they used to enter foreign markets then compare them with the views of the authors quoted in the literary review. Only in this way is it possible to compare the realities of internationalisation versus the various studies that have been produced on this subject.

 

3.7.      Limitations

Qualitative research is increasing, especially in the social sciences, as an alternative to the quantitative research. Even though it has gained increased recognition and importance, qualitative research still has significant limitations. In particular, qualitative research can present challenges in terms of generalisable results, validity and reliability.

As for the quantitative method, the qualitative method requires time, advance preparation and experience of application. Willig, 2001 states that “The qualitative method of data collection and analysis incorporate a wide range of different techniques and epistemological assumptions. Careful selection of the appropriate qualitative method is important”.

Limitations such as research bias is built in and there are unavoidable difficulties with replicability.  Above all, the most significant disadvantageous limitation of the method used was the limited numbers of participants. It was difficult to arrange fully conducive interviews with managers and employees. Reasons for this include the unavailability of staff when the interviews took place; sometimes staff were distracted by business matters they must attend to and the number of employees who were in a position to answer the questions. The owners were the true fountain of knowledge so this is where most effort was concentrated. 

Despite having had the fortune to be granted access to conduct interviews with both Romcaffè and NSC, nearly all of the information gathered was obtained directly from the owners. These people literally manage everything top to bottom. This is not typical of many business operations. In this case, both businesses studied can be regarded as almost unique or highly specialised in what they do. As a result, only the owners were able to provide the information south for this study.  Furthermore being small-medium sized companies in specialised fields they tended to be a bit closed to probing questions, especially NSC. The line between what was deemed to be a straightforward question and an intrusive question became somewhat blurred. It was clear that while being outwardly willing to answers questions, there was an undercurrent of just saying enough, versus being truly open with the answers. The impression was that there was more depth of the information to be obtained, just no way of getting it or being able to tease it out. Not only was it a challenge to illicit information, the amount of publically available information was also somewhat limited. It would have been preferable to find a lot of publically available material and subsequently ask the owner to confirm the validity of various aspects of it, delving deeper into the points of real interest, finally to home in on the key questions the dissertation seeks to answer.  

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