Journal of Small Business Management 2007 45(2), pp.

214–238

Employee Training in SMEs: Effect of Size and

Firm Type—Family and Nonfamily
by Bernice Kotey and Cathleen Folker

The study examined the main and interaction effects of size and firm type on a
variety of informal and formal training programs in small and medium-sized enter-
prises (SMEs). Samples of 448 family and 470 nonfamily SMEs were separated into
four size groups and differences were assessed using multivariate analyses of vari-
ance. The results point to prevalence of informal training for all sizes and an increase
in adoption of formal, structured, and development-oriented training with increas-
ing firm size (especially for firms with 20–99 employees). This pattern was evident
for nonfamily but not for family firms. For family firms, formal training programs
increased significantly during the critical growth phase only (20–49 employees). Gaps
in employee training between the two types of firms were greatest at 50–99 employ-
ees but narrowed thereafter at 100–199 employees. The approach to employee train-
ing in family SMEs is in consonance with their slower growth, informal management
styles, limited financial resources, and greater emphasis on efficiency compared with
nonfamily SMEs.

grams that encourage management and

Introduction
The perceived importance of training
to improvements in productivity, sus-
tained competitive advantage, and ulti-
mately to firm performance has led
governments in various countries to
invest considerable resources into pro-
employee training in small and medium-
sized enterprises (SMEs) (Patton, Marlow,
and Hannon 2000; Lattimore et al. 1998;
Westhead and Storey 1996). It is believed
that training is a powerful agent to devel-
opment of capabilities and to growth and
profitability of the firm (Cosh, Duncan,

Bernice Kotey is associate professor in the New England Business School at the University
of New England, Armidale.
Cathleen Folker is assistant professor in the Department of Business at the University of
Wisconsin–Parkside, Kenosha, WI.
Address correspondence to: Bernice Kotey, New England Business School, The University of
New England, Armidale, NSW 2351, Australia. Tel: 61 2 6773 2830. E-mail: bkotey@une.edu.au.

214 JOURNAL OF SMALL BUSINESS MANAGEMENT

and Hughes 1998). Chandler and McEvoy
(2000) argued that firms that invest in
employee training, engage in formal per-
formance appraisal, and link these to
incentive compensation are likely to have
lower employee turnover, higher pro-
ductivity, and enhanced financial per-
formance. Ibrahim and Ellis (2003)
suggested that training would enhance
the survival rate of small firms and Reid
and Harris (2002) noted that the most
successful SMEs provide more employee
training than average. Litz and Stewart
(2000) established a link between
employee training and superior firm per-
formance. In addition, small business
failure has been linked to poor manage-
ment skills (Lattimore et al. 1998;
Jennings and Beaver 1995). It is argued
that management training should greatly
improve SME survival and performance
(English 2001; Lattimore et al. 1998).
MacRae (1991) established that a major
distinguishing factor between high-
growth and low-growth small firms is the
education, training, and experience of
their senior managers.
Despite the professed importance of
employee training to small business per-
formance, this area has received little
attention in the literahiture (Reid and
Adams 2001; Loan-Clarke et al. 1999).
The existing literature tends to focus on
management training (Heneman, Tansky,
and Camp 2000) to the exclusion of other
forms of employee training. Few
researchers have investigated the deter-
minants of training in SMEs (Reid and
Harris 2002; Loan-Clarke et al. 1999) and
in all cases the dependent variable—
training—was measured by a single vari-
able, the training budget. Because
informal training is often not accounted
for in the firm’s books, the literature
tends to be biased toward formal train-
ing. In addition to these gaps there is a
paucity of research on family businesses
(Sharma 2004; Hoy 2003), particularly on
issues pertaining to human resource
management (HRM) (Matlay 2002). In
KOTEY AND FOLKER
this paper, we examine the main and
interaction effects of two factors (size
and type of firm—family and nonfamily)
on a variety of training programs in
SMEs. To date, research on the impact of
size and/or type of firm on training has
investigated main effects only, ignoring
how differences in employee training
between family and nonfamily firms may
vary with firm size. If indeed training
does enhance performance of SMEs, then
the findings should be useful for formu-
lating policies and designing programs in
this area.
Definitions
Family Business
Researchers have suggested the use of
multiple conditions to identify family
from nonfamily firms (Litz 1995). Fre-
quently used conditions include family
ownership and control (Upton, Teal, and
Felan 2001; Litz 1995), family influence
in decision-making (Sharma, Chrisman,
and Chua 1997) family members as
employees (Department of Employment,
Work Relations, and Small Business
[DEWRSB] 1998), and the intent to trans-
fer the family firm to the next generation
(Stewart 2003). Chua, Chrisman, and
Sharma (1999) asserted that the intention
to sustain the vision of the controlling
family members across generations is
important to identifying family from non-
family firms. However, they added that
dominant family ownership and signifi-
cant involvement of family members in
management of the firm is sufficient to
ensure that the vision of the family is
shaped and pursued by the business. In
this paper, respondents identified their
firms as family or nonfamily. This desig-
nation was corroborated by a number of
criteria (ownership and control, decision-
making, employment of family members,
and business acquired from parents). In
addition, family ownership and family
management were verified independ-
ently. The conditions used to identify
family from nonfamily firms in this study
215
are consistent with those employed in
the literature (see for example Chua,
Chrisman, and Chang 2004; Upton, Teal,
and Felan 2001).
SMEs
The definitions of small and medium
firms by the Australian Bureau of Statis-
tics were adopted for this study. A small
firm was defined as employing between
5 and 19 workers and a medium firm as
having between 20 and 199 employees
(DEWRSB 1998). Thus firms with 5–199
employees were examined. Micro-firms
(defined as employing up to four
workers) were excluded from the study
because of their small employee
numbers and limited employee training
(Kotey and Sheridan 2004). SMEs in this
paper thus comprise both family and
nonfamily firms with 5–199 employees.
The paper is organized into five sec-
tions. The first section provides a back-
ground to the study and ends with the
hypotheses to be tested. The second
section describes the research methods
and the third presents the results of
the analyses, which are discussed in the
fourth section. The final section covers the
summary and conclusions to the study.
Background
Employee Training in SMEs
Despite the perceived importance of
training to improved SME performance,
there is a general reluctance among
SMEs to provide formal employee train-
ing. Employee training in SMEs is often
described as informal, unplanned, reac-
tive, and short-term oriented (Hill and
Stewart 2000). Training in SMEs is mostly
on-the-job with little or no provision for
employee development (Loan-Clarke et
al. 1999; Storey 1994; Marlow and Patton
1993). MacMahon and Murphy (1999)
noted that SMEs rarely carry out formal
training needs analysis and have no sys-
tematic approach to training. A number
of factors account for this preference for
informal training among SMEs.
216 JOURNAL OF SMALL BUSINESS MANAGEMENT
First, owner–managers perceive formal
training as an unaffordable luxury involv-
ing not only course fees but also the cost
of lost output while employees are off-
the-job (Curran et al. 1997; Westhead and
Storey 1996). Second, small firms gener-
ally have a short time horizon because
they face high levels of uncertainty. In
contrast, benefits from training tend to be
realized in the long-term, which makes
investment in employee training unat-
tractive to small firms (Westhead and
Storey 1996). Further, trained employees
are more likely to be lost to other employ-
ers because of the relative lack of internal
promotion opportunities in SMEs. Fourth,
with a limited capacity to acquire infor-
mation, small firms are usually less aware
of both the training programs available to
them and their associated costs and ben-
efits (Westhead and Storey 1996). Owner–
managers argue that employee training
results in highly specialized staff, as
opposed to the multiskilled workforce
required to cope with the largely flexible
nature of jobs in SMEs (MacMahon and
Murphy 1999). Finally, the inability to
establish a direct positive link between
training and performance may de-
motivate owner–managers from investing
in this area (Storey 1994).
Informal training is preferred because
it is less costly, can be easily integrated
into daily operations of the small firm,
and is focused on employees’ specific
needs (Hill and Stewart 2000; Curran et al.
1997). Employees learn in the context in
which their skills are used. They develop
skills for solving diverse problems within
the firm, leading to the development of a
multiskilled labor force more suited to the
needs of SMEs (Smith et al. 2002). Infor-
mal training is thus often reactive to press-
ing issues within the firm rather than to
long-term development of employees. It is
consistent with the overall strategic orien-
tation of SMEs—that is, informal and flexi-
ble (Gibb 1997; Storey 1994).
In spite of these seemingly legitimate
reasons for preferring informal training, it
is argued that failure to provide adequate
formal employee training retards devel-
opment of sustained competitive advan-
tages in SMEs (Stewart and McGoldrick
1996; Garavan, Costine, and Heraty
1995).
The Impact of Firms’ Size and
Family Dimension on Employee
Training in SMEs
A closer analysis of SMEs reveals that
differences in attitude to training can be
attributed to firm size and type of firm
(family and nonfamily). Roberts, Saw-
bridge, and Bamber (1992) suggested that
the limits of informality become apparent
in firms with 20 or more employees, when
informal styles of management are
stretched. Jennings and Beaver (1997)
noted that at this size the owner becomes
overextended and needs to delegate
responsibility to more professional man-
agement. Thus at the lower end of the size
scale, where the owner–manager can
directly control work performance,
employee training would be predomi-
nantly on-the-job. Employees would be
told what to do or their performance cor-
rected on-the-job. However, more formal
training programs would be adopted as
firm size increases. Hornsby and Kuratko
(1990), Loan-Clarke et al. (1999), and
Kotey and Slade (2005) reported that
training is increasingly delegated to spe-
cialists within and outside the firm as the
firm grows and that training becomes
more formal, structured, and oriented
toward developing employees for higher-
level positions in growing firms (Mabey
and Thomson 2001; Westhead and Storey
1997). Mabey and Thomson (2001) for
example found that only 25 percent of
firms with fewer than 100 employees had
a budget for management development
compared with 49 percent for larger
firms. There is, however, a limit to which
employee training would increase with
firm size. Kotey and Slade (2005) noted
that the rate of increase in formal
KOTEY AND FOLKER
employee training declined at the larger
end of the size scale. Their findings con-
firmed those of Blau (1970) that as size
expands, specialization and formal proce-
dures increase—at first rapidly but then
more and more slowly.
Another discriminating factor with
respect to employee training in SMEs is
type of firm (family and nonfamily). It is
postulated that family firms are less likely
than nonfamily SMEs to provide employ-
ees with formal training (Loan-Clarke et al.
1999; Martin and Staines 1994). Martin and
Staines (1994) reported that family propri-
etors placed more emphasis on technical
than managerial skills, whereas the
reverse was true for nonowner managers.
Loan-Clarke et al. (1999) contended that
whereas nonowner managers often show
a genuine interest in their employees’
career progression, family proprietors feel
threatened if subordinates developed
their managerial competence. They found
that family firms were less likely to invest
in management training, and explained
that even though family proprietors often
lack confidence in their abilities as man-
agers, they are reluctant to give up per-
sonal control and to delegate tasks to
others. Loan-Clarke et al. (1999) argued
that competent nonfamily managers con-
stitute a threat to less competent family
proprietors. Because dominant family
ownership and involvement in manage-
ment are major differentiating factors
between family and nonfamily firms, it
would follow that formal employee train-
ing would be lower in firms with greater
family ownership and management than
in firms that are owned by outsiders and
managed by nonowners.
Researchers who have analyzed the
impact of type of firm and firm size on
employee training examined the training
budget as the dependent variable (Reid
and Harris 2002; Loan-Clarke et al. 1999).
A variety of training programs (in par-
ticular, informal training programs such
as on-the-job training, job rotation, and
apprenticeships) not usually included in
217
the training budget were not considered,
as though skills and knowledge acquired
through these training programs are not
relevant. Hill and Stewart (2000) and
Sirmon and Hitt (2003) drew attention to
the importance of informal training to
skill and knowledge acquisition in small
firms. This present research attempts to
fill the gap in the literature by examin-
ing changes in a variety of training pro-
grams across firm sizes and between
family and nonfamily firms of varying
sizes.
Hypotheses Development—HRM
and Employee Training in Family
and Nonfamily SMEs
Researchers have established a posi-
tive relationship between the effective-
ness of training (Huang 2001) or
expenditure on training (Reid and Harris
2002) and the level of sophistication in
the HRM function. Thus, employee train-
ing in family SMEs should be consistent
with their overall approach to human
resource management. The existing liter-
ature tends to stereotype the employment
relationship in family firms. At one
extreme is the firm with a “warm family
atmosphere” where employees are made
to feel part of the family and work in a
close and harmonious relationship with
each other. The other extreme is a firm
run dictatorially by patriarchs where
employees have little say in what happens
to them. Employee training is likely to be
encouraged in the former but not the
latter.
An important component of the “warm
family atmosphere” is the informal
approach to management (Reid and
Adams 2001; Astrachan and Kolenko
1994; Daily and Dollinger 1993) where
efficiency rather than growth is empha-
sized as a performance goal (Donckels
and Frohlich 1991). Employees have easy
access to management (Kets de Vries
1993). Kets de Vries (1993) noted that the
family atmosphere provides employees a
sense of identification and motivates them
218 JOURNAL OF SMALL BUSINESS MANAGEMENT
to commit to achieving the business and
family goals. The well-being of family
members and employees take precedence
over short-term profit and growth goals
(Gersick et al. 1997; Dunn 1995). Dyer
(1988, 1986) drew attention to the pater-
nalistic culture of family firms that empha-
sizes trust, loyalty, and inclusiveness and
Sirmon and Hitt (2003) argued that these
attributes constitute unique resources that
are difficult to imitate. Donckels and
Frohlich (1991) established that family
firms paid more wages and cared more
about their employees than nonfamily
firms. Lyman (1991) found that family pro-
prietors used a more personal approach,
trusted their employees, and relied less on
formal written policies. It could be argued
from this portrayal of concern for employ-
ees’ well-being that family proprietors
would attend to their employees’ training
and development needs. However, any
such training is likely to be informal and
on-the-job. Such tacit and informal knowl-
edge transferred through direct exposure
and experiences (Lane and Lubatkin 1998)
provide employees of family firms deeper
levels of firm-specific knowledge than
those that occur in nonfamily firms
(Sirmon and Hitt 2003).
The “patriarch” representation sug-
gests that gains in employee performance
arising from the “warm family atmos-
phere” are eroded by conflicts associated
with the family dimension. Kets de Vries
(1993) noted that the flat and accommo-
dating structure of the family firm often
becomes complex as authority and
responsibilities are poorly defined. He
argued that founders can become domi-
neering, autocratic, and inward looking,
running the firm conservatively, and
ignoring issues in the firm’s environment
that impact on performance. Cromie,
Stephenson, and Montieth (1995) drew
attention to the centralized and secretive
decision-making process in family firms
that excluded employees. Donckels and
Frohlich (1991) reported that family firms
were less likely to be concerned with the
participation of employees in decision-
making, in ownership and/or with the
self-fulfillment of employees. Harris, Reid,
and McAdam (2004) also observed that
unlike nonfamily firms, family firms rarely
involved their employees in or informed
them of issues affecting the firm. The
general view is that employees are looked
after and therefore do not need to be con-
sulted on issues pertaining to the firm.
Reid and Adams (2001) examined differ-
ences in human resource practices
between family and nonfamily firms and
found that compared with nonfamily
firms, family firms spent less of their
annual salary and wage bill on employee
training and were less likely to engage in
systematic analysis of employee training
needs. Schulze et al. (2001) noted the
lower caliber of managers in family firms
and the inability of these firms to compete
on the labor market for competent staff
due to lower compensation packages.
According to Matlay (2002) family propri-
etors paid greater attention to the training
needs of family members employed in the
firm than to nonfamily employees. These
depictions of the family firm suggest
limited concern for employee training
outside what is required to do their job,
particularly for employees outside the
family.
These two scenarios are consistent
with the general description of HRM in
small firms (Barrett 1999; Wilkinson
1999) and could apply to family and non-
family small firms alike. However, differ-
ences in ownership control, management
practices, and employee training between
family and nonfamily firms should
become evident as the firms expand in
size. For nonfamily firms, an increase in
outside equity interest and nonowner
managers would lead to pursuit of short-
term profit and growth goals (Daily and
Dollinger 1993). These goals are neces-
sary to enable access to resources outside
the family, to meet the expectations of
external owners and for the personal
gains of nonowner managers (Morris et
KOTEY AND FOLKER
al. 1997). Greater internal control proce-
dures and accountability are called for
with the agency relationship that evolves.
Daily and Dollinger (1993) explained that
these procedures are aimed at reducing
opportunism or self-interest actions of
nonowner managers. Increased internal
controls require formal management
practices and skilled managers. Emphasis
on short-term profits and growth would
thus require attention to employee per-
formance and training. Further, employ-
ees need to be trained for the new
positions in growing firms. This situation
differs from that for the family firm where
growth is restricted and management
practices remain relatively informal (even
at larger firm sizes). Employee training is
also limited because competent employ-
ees are perceived as a threat to the family
proprietor’s desire to retain control of the
firm (Harris, Reid, and McAdam 2004).
Employee training and development is
therefore likely to receive more attention
in larger nonfamily than in similar-sized
family firms. It can be implied from the
earlier representation that employee
training will increase as outside owner-
ship interest in the firm expands.
Kotey and Slade (2005) have demon-
strated that an initial rapid increase in
the adoption of formal HRM practices is
followed by a slower rise with further
increases in firm size. This suggests that
any increase in the use of formal train-
ing programs among nonfamily firms
should slow down at the larger end of
the size scale, allowing family firms to
catch up with their nonfamily counter-
parts. Following from the review of the
literature, these hypotheses have been
developed for testing:
(1) Employee training and firm size
H1: On-the-job training is the predomi-
nant training method for SMEs of all
sizes.
H2: The adoption of structured
and development-oriented training
increases with firm size.
219
H3: The increased adoption of formal
training in SMEs occurs rapidly ini-
tially but slows down after a certain
size.
(2) Employee training and family/non-
family firms
H4: There are no differences in employee
training between small family and
nonfamily firms.
H5: Medium-sized nonfamily firms place
greater emphasis on structured and
development-oriented employee train-
ing than similar family firms.
H6: At the larger end of the scale,
differences between family and non-
family firms in the adoption of formal
and development-oriented training
decrease.
H7: Medium-sized nonfamily firms use
more outsiders in employee training
than similar family firms.
H8: At the larger end of the scale, the gap
narrows between family and non-
family firms in the use of specialist
and outside trainers.
H9: Employee training increases as own-
ership interest of the proprietors and
their families decreases.
Research Methods
Data
Data were obtained from the Business
Longitudinal Survey, a national survey
conducted by the Australian Bureau of
Statistics and presented as a Confiden-
tialised Unit Record File. Each record in
the file contains the main financial and
operating characteristics of an individual
firm in each of the fiscal years 1994–1995
and 1997–1998.
Sample
The research was based on data for
incorporated but independently owned
small and medium-sized manufacturing
firms, continuing operations in the 1997–
1998 fiscal years. For a closer examination
of the impact of firm size on employee
training in family and nonfamily firms,
220 JOURNAL OF SMALL BUSINESS MANAGEMENT
medium-sized firms were divided into
three groups based on employee
numbers—that is, 20–49 employees
(group two); 50–99 employees (group
three); and 100–199 employees (group
four). These categories are similar to those
adopted in existing research on employee
training in SMEs (see for example Loan-
Clarke et al. 1999). There were 356 firms in
group one (5–19 employees); 304 firms in
group two; 180 firms in group three; and
78 firms in group four.
The machinery and equipment manu-
facturing sector (Australian and New
Zealand Standard Industry Classification
[ANZSIC] code 228) represented 23
percent of firms in the sample, the highest
percentage of firms from any one industry
sector. Wood and paper product (ANZSIC
code 223) and nonmetallic mineral
product manufacturing (ANZSIC code
226) had the least proportion of firms in
the sample—4.6 percent and 4.9 percent,
respectively. There were no significant
differences in industry sector concentra-
tion between family and nonfamily firms
in the various size groups. Further, the
level of technological intensity, measured
as the ratio of research and development
expenditure to sales (Dhanaraj and
Bearmish 2003; Erramilli, Samjeev, and
Seong-Sok 1997)) was similar for both
family and nonfamily firms and across the
various size groups. Technological inten-
sity was examined because of its possible
influence on size of manufacturing firms
(Buckley and Casson 1991; Anderson and
Tushman 1990) and thus on employee
training.
The sample was limited to incor-
porated independent firms to eliminate
the possible effect of legal form and
dependence on a parent company on
employee training in family and non-
family firms.
Measurement of Variables
Family and nonfamily firms were
identified by a question, which required
respondents to indicate whether or not
they considered their firm a family firm.
To validate their responses they were
asked to indicate (with a “yes” or “no”
response to four conditions) why they
considered their firm as family or non-
family. The four conditions were—family
members were—(1) working directors in
the firm; (2) employed in the firm; (3)
not working but contributed to deci-
sions; and (4) the firm was acquired from
parents. All respondents (100 percent)
who considered their firms as nonfamily
provided “no” answers to all four ques-
tions. In comparison, 96 percent of those
who operated family firms answered
“yes” to family members as working
directors in the firm; 58 percent to family
members as employees in the firm; 11
percent to family members not working
but contributing to decisions; and 14.5
percent indicated that the firm had been
passed on from parents. It appears that
respondents who identified their firms as
family firms based their selection on
more than one criterion, the most
common being family members as
working directors in the firm. The chi-
square statistics, examining differences
in responses between family and non-
family firms to the four questions, were
significant (p ≤ .001). In addition, a mul-
tivariate comparison of family and pro-
prietors’ equity interests and number of
nonowner managers in the firm indicated
that family members and proprietors
had more equity in firms classified as
family than those identified as nonfamily
firms (Table 1). Finally, the number of
managers outside the family was fewer
for family firms than for nonfamily
firms.
The formal training programs exam-
ined were (1) structured training courses;
(2) seminars and workshops; (3) man-
agement training; (4) professional train-
ing; (5) computer training; and (6)

Table 1
Firm Characteristics—Incorporated Family
and Nonfamily Firms
Variable Nonfamily Family F-value p-value

Means and Standard Error

Working Proprietors 1.40 (0.06) 2.00 (0.06) 44.43 0.000

Nonfamily Managers 4.40 (0.23) 2.60 (0.23) 28.43 0.000
Proprietors from the 0.00 (0.00) 0.63 (0.24) 31.27 0.000
Same Family
Total Employees 47.00 (1.76) 33.00 (1.81) 28.34 0.000
Total Full-Time Employees 44.40 (1.71) 30.80 (1.75) 30.63 0.000
Age 7.76 (0.21) 9.67 (0.21) 40.29 0.000
Percent of Equity from 44.00 (1.99) 71.00 (2.04) 91.68 0.000
Working Proprietors
Percent of Equity from 4.80 (0.96) 9.40 (0.98) 11.24 0.001
Nonworking Family
Percent of Equity from 48.40 (1.97) 80.20 (2.02) 128.06 0.000
Proprietors and Family
Percent of Equity from All 52.50 (2.08) 19.80 (2.13) 120.63 0.000
Other Sources

KOTEY AND FOLKER 221

occupational health and safety training.
Informal programs comprised (1) on-the-
job training; (2) job rotation; (3) appren-
ticeship and traineeship; and (4) “other
training.” “Other training” included all
other training not covered separately in
the list of formal and informal programs.
The questionnaire used for the data set
required respondents to indicate the
percentages of their employees who
participated in each training program
in the 1997–1998 fiscal year. Their
responses were divided into five cate-
gories. Firms with no employees in a
training program were placed in cate-
gory one and those with up to 25 percent
of employees in a training program were
in category two. Firms with 75 to 100
percent employees in a training program
were placed in category five. This origi-
nal measurement of the training vari-
ables in the data set was altered for
purposes of this research. Firms with
missing values to the training programs
were excluded from the analyses—there
were 282 such cases. Firms with no
employees in a training program were
recoded as 0 and those with 75 to 100
percent employees in a program as 4.
Because categories one to four each had
the same bandwidth (25 percent), the
five categories, including that with no
employees in a training program, were
treated as interval data and were sub-
jected to log transformations to improve
normality. This made it possible to use
multivariate techniques for subsequent
analyses.
Respondents were also asked to indi-
cate with a “yes” or “no” response if train-
ing providers were used for training.
Training providers covered in the data
set were (1) employees or owners them-
selves randomly; (2) employees or
owners in a structured training program;
(3) professional associations; (4) industry
associations; (5) equipment suppliers/
manufacturers; (6) private training con-
sultants; (7) technical colleges; and (8)
universities and other providers.
222 JOURNAL OF SMALL BUSINESS MANAGEMENT
Analytical Techniques
Multivariate analyses of variance
(MANOVA) were used to examine differ-
ences in training programs between
family and nonfamily SMEs and among
the different size groups separately (that
is, main effects), and between family and
nonfamily firms in the various size groups
(that is, interaction effect of family and
size) (SPSS Inc. 1997). Sidak adjustments
were made for pairwise comparisons to
limit type one error and Dunnetts T3 was
used for post hoc adjustments for the size
comparisons. Path analysis was used to
assess the relationships between the
training variables and equity interest of
working proprietors and their families
(Byrne 2001) for the sample as a whole
and for family and nonfamily firms sepa-
rately. The latent variable—training—was
developed from the 10 training variable
items. Finally, differences in training
providers between family and nonfamily
firms in each size group were examined
by chi-square tests.
Sample Characteristics
There were 448 family firms (FF) and
470 nonfamily firms (NFF) in the final
sample, divided among the various size
groups as follows—group one (195 FF;
161 NFF); group two (157 FF; 147 NFF);
group three (78 FF; 102 NFF); group four
(18 FF; 60 NFF). The multivariate results
indicated significant differences between
family and nonfamily firms with respect
to employee numbers, age, ownership
interest, and number of outside managers
(Wilks’s Lambda = 0.783; F = 27.92; df = 9;
908 and p = .000). The results of the uni-
variate F-tests are presented in Table 1.
The average number of employees
and those employed on full-time basis
were higher for nonfamily firms but non-
family firms were younger than their
family counterparts. This is consistent
with the findings of Chua, Chrisman, and
Chang (2004). Family firms had more
working proprietors but fewer nonowner
managers compared with nonfamily
firms. The results also show that there
were significantly more proprietors from
the same family for family than for non-
family firms. Further analysis indicated
that 70 percent of family firms had more
than one working proprietor compared
with 42 percent for nonfamily firms.
Equity interests of working proprietors
and nonworking family members were
greater for family firms than for non-
family firms (Table 1). In contrast, the
percentage of equity supplied from
sources other than the family and
working proprietors was smaller for
family firms than for nonfamily firms.
Results of Hypotheses
Tests
The multivariate results showed sig-
nificant differences between family and
nonfamily firms and among the different
size groups (main effects) in percentage
of employees who participated in the
various training programs in the
1997–1998 fiscal year (Table 2). Differ-
ences in employee training between
family and nonfamily firms of different
sizes (interaction effect) were also sig-
nificant. The F-values were significant at
p < .05 for the three comparisons.
Main Effects—Size
The mean values in Table 3 confirmed
that on-the-job training was the predom-
Table 2
Multivariate Testsa—Values for Wilks’s Lambda
Effect Value F Hypothesis df
Intercept 0.240 285.169b
Size 0.735 9.729
Family/Nonfamily 0.962 3.545a
Size and Family 0.952 1.487
a
Design, intercept + size + family business + size × family business.
b
Exact statistic.
KOTEY AND FOLKER
inant method for firms of all sizes (H1).
For small firms (group one) job rotation,
other training methods, seminars, struc-
tured training, and health and safety
training followed on-the-job training in
order of percentage employee participa-
tion. Firms in group two had structured
training, job rotation, health and safety,
other training, and seminars in order of
employee participation, after on-the-job
training. Health and safety, structured
training, seminars, job rotation, and other
training methods followed on-the-job
training for firms in group three. This
pattern was similar for group four except
that other training methods preceded job
rotation in terms of percentage employee
participation (Table 3). For all four
groups, apprenticeships and trainee-
ships, computer, management, and pro-
fessional training were at the bottom of
the list in terms of employee participa-
tion. Univariate F-tests produced signifi-
cant F-values for all the training
programs, indicating that there were sig-
nificant differences between one or more
groups for each training method exam-
ined (Table 3).
The percentages of employees in the
various training programs were signifi-
cantly less for group one compared with
the other groups (Table 4). Firms in
group two had fewer employees in train-
ing programs such as health and safety,
seminars, management, professional, and
Error df Significance
10.000 901.000 0.000
30.000 2645.289 0.000
10.000 901.000 0.000
30.000 2645.289 0.043
223
 Table 3
Descriptive Statistics and Univariate F Results for Training
Programs in the Four Size Groups
Small Medium Firms
Firms

Means and Standard Error

Variable/Groups Group 1 Group 2 Group 3 Group 4 F-Value p-Value

n = 356 n = 304 n = 180 n = 78

Structured Training 0.13 0.24 0.28 0.31 36.087 0.000

(0.01) (0.011) (0.014) (0.025)
Seminars and 0.13 0.21 0.27 0.29 36.926 0.000
Workshops (0.009) (0.01) (0.013) (0.023)
Professional 0.04 0.1 0.16 0.18 38.212 0.000
Training (0.007) (0.008) (0.01) (0.02)
Management 0.07 0.12 0.19 0.2 31.613 0.000
Training (0.008) (0.009) (0.011) (0.02)
Computer Training 0.07 0.13 0.18 0.2 21.922 0.000
(0.009) (0.009) (0.012) (0.022)
Health and Safety 0.12 0.22 0.30 0.33 52.792 0.000
(0.009) (0.01) (0.013) (0.024)
On-the-Job Training 0.36 0.43 0.43 0.44 6.829 0.000
(0.011) (0.012) (0.016) (0.028)
Job Rotation 0.17 0.23 0.26 0.25 9.081 0.000
(0.011) (0.012) (0.016) (0.029)
Apprenticeship and 0.09 0.14 0.16 0.17 11.708 0.000
Traineeship (0.009) (0.009) (0.012) (0.022)
Other Training 0.14 0.22 0.23 0.28 18.866 0.000
Programs (0.01) (0.01) (0.014) (0.024)

computer training when compared with
those in groups three and four. Employee
participation in on-the-job training,
apprenticeships, and job rotation was
similar for firms in groups two, three,
and four (Table 4). More employees in
group four compared with group two
were in structured and “other training”
programs. With the exception of “other
training,” employee participation in the
various programs was similar for groups
three and four. The findings confirm that
the adoption of structured and develop-
ment-oriented training increases with
firm size (H2) and that the increased
adoption of formal training programs
tapers at the larger end of the size scale
(H3).
Main Effects—Family/Nonfamily
SMEs
From the mean values, on-the-job
training was the predominant method
for both family and nonfamily SMEs

224 JOURNAL OF SMALL BUSINESS MANAGEMENT

 Table 4
Multiple Comparisons among Firms in the Four Groupsa
Training t-Values and Significant Level
Variable/Groups
Compared 1–2 1–3 1–4 2–3 2–4 3–4

Structured Training −0.105 −0.151 −0.203 −0.046 −0.098 −0.052

(0.000) (0.000) (0.000) (0.053) (0.000) (0.204)
Seminars and −0.08 −0.15 −0.19 −0.07 −0.107 −0.037
Workshops (0.000) (0.000) (0.000) (0.000) (0.000) (0.313)
Professional Training −0.054 −0.127 −0.15 −0.073 −0.096 −0.023
(0.000) (0.000) (0.000) (0.000) (0.000) (0.848)
Management Training −0.054 −0.125 −0.144 −0.071 −0.09 −0.018
(0.000) (0.000) (0.000 (0.000) (0.000) (0.953)
Computer Training −0.052 −0.11 −0.141 −0.073 −0.096 −0.031
(0.000) (0.000) (0.000) (0.002) (0.001) (0.755)
Health and Safety −0.106 −0.185 −0.216 −0.079 −0.11 −0.032
(0.000) (0.000) (0.000) (0.000) (0.000) (0.663)
On-the-Job Training −0.0656 −0.0694 −0.0802 −0.0037 −0.0146 −0.108
(0.001) (0.001) (0.011) (1.00) (0.99) (1.00)
Job Rotation −0.06 −0.094 −0.08 −0.034 −0.02 0.013
(0.003) (0.000) (0.016) (0.353) (0.965) (0.997)
Apprenticeship and −0.055 −0.072 −0.076 −0.017 −0.0214 −0.004
Traineeship (0.000) (0.000) (0.001) (0.86) (0.87) (1.000)
Other Training −0.079 −0.097 −0.156 −0.018 −0.077 −0.059
Programs (0.000) (0.000) (0.000) (0.868) (0.002) (0.037)

a
Post hoc tests—Dunnett T3.

(Table 5). For nonfamily firms structured
training, health and safety training, and
seminars and workshops followed on-
the-job training in percentage of
employee participation. “Other training”
methods and job rotation were next in
line, whereas computer, management,
professional training, and apprentice-
ships were at the bottom of the list as
training programs employed in nonfam-
ily SMEs (Table 5).
For family firms job rotation, health
and safety, structured training, other
training, and seminars and workshops
followed on-the-job training in order of
employee participation. Apprenticeships
and computer, management, and profes-
sional training were the least used train-
ing programs.
The comparisons between family and
nonfamily firms revealed that a greater
percentage of employees participated in
structured training, seminars and work-
shops, professional, computer, and man-
agement training, health and safety, and
other training programs in nonfamily
than in family SMEs (Table 5). The per-
centages of employees in job rotation
and on-the-job programs were similar for
the two types of firms. Apprenticeships
and traineeships were more popular in
family than nonfamily firms although

KOTEY AND FOLKER 225

 Table 5
Descriptive Statistics and F-Values for Family and
Nonfamily Firms Compared
Variable Means and Standard Comparison F- p-
Errors 1–2 value value

Variable Nonfamily Family Comparison F- p-

(1) (2) 1–2 value value

Structured Training 0.27 (0.009) 0.21 (0.013) 0.058 13.65 0.000

Seminars and 0.25 (0.008) 0.19 (0.012) 0.055 14.19 0.000
Workshops
Professional Training 0.14 (0.007) 0.1 (0.01) 0.037 9.33 0.002
Management Training 0.16 (0.007) 0.13 (0.011) 0.035 7.16 0.008
Computer Training 0.16 (0.008) 0.13 (0.011) 0.037 7.08 0.008
Health and Safety 0.26 (0.009) 0.22 (0.013) 0.032 4.34 0.038
On-the-Job Training 0.43 (0.011) 0.4 (0.015) 0.024 1.74 0.188
Job Rotation 0.23 (0.011) 0.23 (0.015) 0.002 0.018 0.89
Apprenticeship and 0.13 (0.008) 0.15 (0.011) −0.023 2.71 0.10
Traineeship
Other Training 0.24 (0.009) 0.2 (0.013) 0.036 5.11 0.024
Programs

Based on estimated marginal means adjustment for multiple comparisons: Bonferroni.

the difference was significant at only
p = .10.
Interaction Effect—Family/
Nonfamily Business and Size
Following the results from the main
model—(size + family + family × size),
separate MANOVAs were carried out for
family and nonfamily firms to examine
the size effect on training for each own-
ership type. The multivariate tests were
significant for both types of firms—the
values for Wilks’s Lambda were—(Wilks’s
Lambda = 0.77; F = 3.99; df = 30; 1,277
and p = .000) for family firms; and
(Wilks’s Lambda = 0.62; F = 7.98; df = 30;
1,342 and p = .000) for nonfamily firms.
The multivariate results indicate that for
both family and nonfamily firms, there
were differences between two or more
size groups in percentage of employees
who participated in one or more training
program(s). This was supported by the
univariate results presented in Tables 6
and 7.
For family firms, the post hoc com-
parisons showed significant increases
between groups one and two in the per-
centages of employees involved in all the
training programs at ( p < .01) except job
rotation which was significant at p = .028
and professional training at p = .017. The
increases between group one and three
were significant at p < .01 for all pro-
grams except on-the-job training (for
which p = .075) and other programs
(which was not significant). Group four
differed from group one on health and
safety ( p = .002); professional training
( p = .047); and seminars and computer
training ( p = .07). The post hoc compar-
isons showed no significant differences

226 JOURNAL OF SMALL BUSINESS MANAGEMENT

 Table 6
Descriptive Statistics and Univariate F Results for Training
Programs in the Four Size Groups of Family Firmsa
Small Medium Firms
Firms

Training Group 1 Group 2 Group 3 Group 4 F-Value p-Value

Variable/Groups n = 195 n = 157 n = 78 n = 18

Means and Standard Errors

Structured Training 0.13 0.23 0.22 0.25 9.862 0.000

(0.013) (0.015) (0.021) (0.044)
Seminars and 0.13 0.19 0.22 0.23 8.078 0.000
Workshops (0.013) (0.014) (0.02) (0.041)
Professional 0.04 0.08 0.13 0.15 10.159 0.000
Training (0.01) (0.011) (0.016) (0.033)
Management 0.06 0.11 0.16 0.18 10.795 0.000
Training (0.011) (0.012) (0.017) (0.036)
Computer Training 0.06 0.13 0.15 0.17 8.514 0.000
(0.011) (0.012) (0.017) (0.017)
Health and Safety 0.10 0.22 0.26 0.26 26.876 0.000
(0.013) (0.014) (0.02) (0.04)
On-the-Job Training 0.34 0.42 0.41 0.44 4.807 0.003
(0.016) (0.017) (0.025) (0.051)
Job Rotation 0.16 0.23 0.26 0.26 5.269 0.001
(0.015) (0.017) (0.024) (0.051)
Apprenticeship and 0.08 0.16 0.18 0.18 9.489 0.000
Traineeship (0.012) (0.013) (0.018) (0.038)
Other Training 0.14 0.22 0.19 0.25 6.351 0.000
Programs (0.013) (0.015) (0.021) (0.044)

a
Significant post hoc comparisons between the groups are reported in the text but
not in the table.

between firms in the other size groups.
The findings imply that the initial
upsurge in employee training at the crit-
ical growth phase was not continued
after this phase.
A different story emerged from the
post hoc pairwise comparisons in
employee training between nonfamily
firms in the various size groups. The
results showed significant increases ( p <
.001) across the various groups (except
between groups three and four) for
employee participation in programs such
as structured training, seminars and
workshops, management and profes-
sional training, and health and safety
programs. Employee participation in on-
the-job training was similar for all size
groups, participation in job rotation
increased between groups one and three
only at p = .009, and the percentages
of employees in traineeships and

KOTEY AND FOLKER 227

 Table 7
Descriptive Statistics and Univariate F Results for Training
Programs in the Four Size Groups of Nonfamily Firmsa
Small Medium Firms
Firms

Training Group 1 Group 2 Group 3 Group 4 F-value p-value

Variable/Groups n = 161 n = 147 n = 102 n = 60

Means and Standard Errors

Structured Training 0.13 0.24 0.33 0.36 37.304 0.000

(0.014) (0.015) (0.018) (0.023)
Seminars and 0.13 0.22 0.32 0.34 40.432 0.000
Workshops (0.013) (0.013) (0.016) (0.021)
Professional 0.04 0.11 0.2 0.2 34.348 0.000
Training (0.011) (0.012) (0.014) (0.018)
Management 0.08 0.13 0.22 0.22 24.857 0.000
Training (0.012) (0.012) (0.015) (0.019)
Computer Training 0.08 0.13 0.21 0.23 17.826 0.000
(0.013) (0.014) (0.017) (0.022)
Health and Safety 0.14 0.22 0.33 0.34 30.829 0.000
(0.014) (0.015) (0.018) (0.023)
On-the-Job Training 0.38 0.43 0.45 0.44 2.495 0.059
(0.016) (0.017) (0.02) (0.027)
Job Rotation 0.18 0.23 0.27 0.25 4.067 0.007
(0.017) (0.018) (0.021) (0.028)
Apprenticeship and 0.09 0.12 0.15 0.16 3.822 0.01
Traineeship (0.013) (0.013) (0.016) (0.021)
Other Training 0.14 0.22 0.28 0.31 19.501 0.000
Programs (0.014) (0.015) (0.018) (0.023)

a
Significant post hoc comparisons between the groups are reported in the text but
not in the table.

apprenticeships increased between
groups one and three at p = .043 and
groups one and four at ( p = .04). Partic-
ipation in computer training increased
for all pairwise comparisons at ( p < .01)
except between groups one and two and
groups three and four where the
increases were not significant. Similarly,
the increased use of “other training” pro-
grams was sig-nificant for all pairwise
comparisons at ( p < .01) with the excep-
tion of groups three and four for which
the changes were not significant and
groups two and three where the increase
was significant at p = .056.
When family and nonfamily firms in
the various size categories were com-
pared, nonfamily firms in group one had
a greater percentage of employees in
health and safety and on-the-job training
than family firms in the same group
(Table 8). There were thus differences in

228 JOURNAL OF SMALL BUSINESS MANAGEMENT

 Table 8
Descriptive Statistics and Comparisons between Family
and Nonfamily firms in the Four Size Groups
Variable Nonfamily Family 1–2 F- p-
(1) (2) value value

Means and Standard Errors

Group 1 (5–19)
Health and Safety 0.138 (0.014) 0.096 (0.013) 0.042 4.74 0.03
On-the-Job 0.384 (0.019) 0.34 (0.018) 0.044 2.85 0.09
Group 2 (20–49)
Traineeships and 0.121 (0.013) 0.159 (0.013) −0.038 4.07 0.045
Apprenticeships
Group 3 (50–99)
Structured Training 0.33 (0.017) 0.22 (0.02) 0.114 18.70 0.000
Seminars and Workshops 0.32 (0.015) 0.22 (0.017) 0.091 16.94 0.000
Management Training 0.22 (0.016) 0.16 (0.018) 0.054 4.91 0.028
Professional Training 0.2 (0.016) 0.13 (0.018) 0.069 8.37 0.004
Computer Training 0.21 (0.017) 0.15 (0.02) 0.068 6.70 0.01
Health and Safety 0.33 (0.016) 0.26 (0.018) 0.067 7.79 0.006
Other Training 0.28 (0.016) 0.19 (0.018) 0.09 13.93 0.000
Group 4 (100–199)
Structured Training 0.36 (0.023) 0.25 (0.042) 0.11 5.37 0.023
Seminars and Workshops 0.34 (0.018) 0.23 (0.032) 0.102 7.66 0.007

Adjustment for multiple comparisons: Bonferroni.

employee training between small family nonfamily SMEs in the adoption of

and nonfamily firms—H4 was refuted.
There were more employees in appren-
ticeships and traineeships for family than
nonfamily firms in group two. Family
firms in group three had lower percent-
ages of employees in the formal pro-
grams examined compared with
nonfamily firms in the same group (Table
8). Thus medium-sized nonfamily firms
placed greater emphasis on formal
employee training and development than
similar family firms, providing support
for H5. The disparities in formal
employee training between family and
nonfamily firms decreased in group four
to structured training and seminars.
Thus, differences between family and
formal employee training declined at the
larger end of the size scale, confirming
H6. However, this finding needs to be
interpreted with caution as it may reflect
lack of statistical power from the small
sample sizes, especially for family firms.
Consistent with the observed differ-
ences for employee participation in train-
ing programs (Table 8), family firms were
less likely than nonfamily firms to use
outside professional trainers, structure
their in-house programs, or enrol
employees in university courses (Table
9), particularly for firms in group three.
The gradual increase and subsequent
decrease in the differences between
family and nonfamily firms in the appli-

KOTEY AND FOLKER 229

 Table 9
Chi-Square Statistics and Percentages for Training
Providers in Family and Nonfamily Firms
Variables Nonfamily Family Firms Total Chi- p-Value
Firms (Percent) (Percent) Square
(Percent)

Group 1—5–19
Employees or Owners 24 16 19 3.35 0.08
Structured
Group 2—20–49
Universities 15 6.4 10.5 5.96 0.016
Group 3—50–99
Professional 58.8 42.3 51.7 4.83 0.035
Associations
Private Training 44.1 29.5 37.8 4.025 0.062
Consultants
Universities 28.4 15.4 22.6 4.28 0.048
Group 4—100–199
Private Training 55 27.8 48.7 4.11 0.06
Consultants
All Firms
Employees or 36.4 27.0 31.8 9.29 0.002
Owners—
Structured
Professional 37.9 26.8 32.5 12.86 0.000
Associations
Private Training 29.4 22.3 25.9 5.92 0.016
Consultants
Universities 16.8 7.4 12.2 19.09 0.000

cation of formal training programs was training and ownership interest of

repeated when training providers were
compared. The findings indicate that
medium-sized nonfamily firms use more
outsiders in employee training than
similar family firms (H7) and that the gap
between family and nonfamily firms in
the use of specialist and outside trainers
narrows at the larger end of the size scale
(H8), although this latter finding may be
associated with the small sample size for
family firms in group four.
The path analyses demonstrated sig-
nificant associations between employee
working proprietors and their families
for the sample as a whole (standardized
regression weight = −0.316, p = .000) and
for nonfamily firms (standardized regres-
sion weight = −0.394, p = .000), but not
for family firms (standardized regression
weight = −0.102, p = .053). The signifi-
cant negative regression weights confirm
that employee training in SMEs, and in
particular nonfamily SMEs, increases as
ownership interest of working propri-
etors and their families decrease, con-
firming H9.

230 JOURNAL OF SMALL BUSINESS MANAGEMENT


Discussions
Employee Training and Firm Size
The findings confirmed that on-the-job
training is the predominant training
method in SMEs and that the adoption of
formal training increases with firm size,
rapidly in the initial stages but slower
thereafter. These findings are consistent
with the literature (Kotey and Slade 2005;
Loan-Clarke et al. 1999; MacMahon and
Murphy 1999; Storey 1994; Marlow and
Patton 1993). The question that ensues
from the prevalence of on-the-job train-
ing is whether it is appropriate for SMEs.
Some researchers argue that informal
training is consistent with the overall
strategic orientation of small firms—
informal and flexible (Hill and Stewart
2000; Westhead and Storey 1996; Mar-
shall et al. 1995). Others contend that by
concentrating on informal training, SMEs
miss out on gains in sustained competi-
tive advantage from a well-trained work-
force (Stewart and McGoldrick 1996;
Garavan, Costine, and Heraty 1995). The
reasons why SMEs prefer informal train-
ing (see section titled “Background”)
appear to give credence to the first posi-
tion—that informal training fits well with
SME strategic orientation—particularly
for smaller firms. Returns from formal
training programs are realizable in the
long-term, but small firms are concerned
with short-term survival (Hill and Stewart
2000; Westhead and Storey 1996). It is not
economically sound to spend on long-
term value creation when the firm is
struggling with raising adequate capital
to keep afloat in the short-term. Given the
high level of vulnerability and uncer-
tainty among small firms and their short-
term orientation, training programs that
are specific to the job, low cost, short-
term oriented and aimed at developing
a multiskilled workforce may be more
relevant to building competitive advan-
tage (providing adequate flexibility to
respond to the rapid changes) at this
stage.
KOTEY AND FOLKER
The second school of thought—staff
with accredited experience and knowl-
edge adds to a firm’s competitive posi-
tion—may be more relevant to firms that
survive the initial growth phase and
encounter different competitive dynamics.
At this stage of their growth, firms develop
hierarchical structures with middle man-
agers responsible for the day-to-day oper-
ations. Division of labor increases and
employees begin to specialize in specific
areas of activity. The ability of middle man-
agers to implement effectively decisions of
the chief executive officers (CEOs) and the
availability of competent personnel for
internal transfers within the firm are
important to individual employee and
firm performance (Westhead and Storey
1996). At this stage, firms face more stable
markets for their products and have
stronger internal employment markets.
The risks associated with returns from
training would have decreased and firms
are able to adopt a longer-term horizon
(Holtman and Idson 1991). The findings
support the position that formal and
development-oriented employee training
is more relevant to firms that survive the
initial growth phase. A rise in formal train-
ing was observed as firm size increased.
In contrast, growth in in-house training
programs (such as on-the-job training,
apprenticeships and traineeships, and job
rotation) stabilized after an initial increase
up to 49 employees. The findings imply
greater concern for both employee train-
ing and development with increase in firm
size to enhance employees’ ability to con-
tribute to organizational success (Kaman
et al. 2001). The smaller proportion of
employees in managerial compared with
operational positions in the small and
medium-sized manufacturing firms exam-
ined may explain the lower percentages of
employees in management and profes-
sional training.
As part of their strategic assessment,
SMEs first need to evaluate their firm’s
primary goals and deficiencies or
internal tensions that cause problems
231
(Fairfield-Sonn 1987). The result may be
that they do not have a current need that
can be fulfilled by training or that exist-
ing training programs are not designed
in a way that is effective for them (Reid
1987). Important factors that require
consideration are length of training
(Banks, Bures, and Champion 1987), the
cost of training, and the returns that
would be achieved.
The initial rapid increase in formal
training programs and subsequent stabi-
lization in the application of these pro-
grams (for firms with 50–199 employees)
concurs with the pattern observed by
Loan-Clarke et al. (1999) for investment
in management training and develop-
ment. It is also consistent with the find-
ings of Kotey and Slade (2005) for HRM
practices in SMEs. Further increases in
the level of formal employee training
may lead to diminishing returns for firms
with more than 99 employees due
perhaps to too many specialists, inade-
quate promotion avenues, and/or too
many employees off-the-job.
Employee Training and
Family Firms
The pattern observed for SMEs in
general—prevalence of on-the-job train-
ing and an initial rapid increase and sub-
sequent stabilization in the adoption of
formal training as firm size expanded—
was evident for nonfamily firms but not
for family firms. For family firms, signifi-
cant increases in formal training occurred
only during the critical growth stages
between 20 and 49 employees with only
modest incremental changes in the next
growth phases. Family firms, like nonfam-
ily firms, are pushed toward more formal
practices with firm growth (Reid and
Adams 2001; Leon-Guerrero, McCann,
and Haley 1998), as conflicts occur
between the requirements for effective
management of growth and the preferred
informal, personal, and direct style of
family proprietors (Mintzberg and Waters
1990; Pascarella and Frohman 1990). At
232 JOURNAL OF SMALL BUSINESS MANAGEMENT
this stage, the limits of informality
becomes overstretched (Roberts, Saw-
bridge, and Bamber 1992) and the bene-
fits of formal training begin to outweigh
the time and costs involved.
The gap between medium family and
nonfamily firms (with 50–99 employees)
in formal programs appears to confirm a
relative preference for informal training
among family firms (Harris, Reid, and
McAdam 2004; Loan-Clarke et al. 1999).
However, for firms with 20–49 and
100–199 employees, similarities between
family and nonfamily firms in the use of
management, professional, and computer
training programs indicate that the patri-
archal management style, sophisticated
paternalism (Wrag 1996), the desire of
family directors to retain power and
control of the firm, and to avoid employ-
ees who are more competent than them
(Loan-Clarke et al. 1999) are not evident
in all family firms. The results may also
be indicative of the smaller size of man-
agerial staff (for whom such training may
be provided) for both types of firms at
20–49 employees and a lack of statistical
power in the analysis for firms in group
four (100–199 employees).
Greater attention to employee training
and development among nonfamily firms
(particularly those with 50–99 employ-
ees) is in consonance with their profit
and growth goals, necessary to attract
resources from outside the family and to
meet the requirements of external owners.
Further, employees need to be trained to
fill the new positions that open with
firm growth. Pursuit of external funding
obliges nonfamily SMEs to develop sus-
tainable competitive positions through
their acquisition, development, and use of
resources, including human resources.
This is consistent with the relatively high
but negative regression weight for the
relationship between employee training
and the percentage of equity owned by
working proprietors and their families. It
also overlaps with the findings for SMEs in
general. In the smaller nonfamily firms
where concentration of ownership inter-
est is relatively higher, limited capital
and emphasis on operational efficiency
(McConaughy 2000) restricts investment
in human capital development. However,
expenditure on training (human capital
development) increases as more funds
become available from external sources
and ownership is dispersed.At this growth
stage the business enters another compet-
itive arena that calls for developing its
human capital to maintain and enhance its
competitive position and to prepare
employees for new positions in the firm.
Family SMEs are able to continue in
business for longer periods than non-
family firms (Littunen and Hyrsky 2000)
as indicated by the differences in ages
between family and nonfamily firms.
Family firms have also been shown to
perform as well as nonfamily firms
(Anderson and Reeb 2003; Kotey 2005).
Thus, family firms indeed may have the
additional resource of family skills and
involvement, enabling them to achieve
similar levels of effectiveness with less
formalized training. Perhaps these addi-
tional resources allow them to gradually
increase training as they expand, rather
than the more substantial increase and
levelling off of training seen in the non-
family firms. The approach to employee
training in family SMEs is in consonance
with their slower growth rates, informal
management styles, limited financial
resources, and greater emphasis on effi-
ciency compared with nonfamily SMEs
(Kotey 2005). Kotey suggested that the
informal system, including informal
employee training, and dependence on
internal resources to fund growth could
be detrimental to the larger family firm
in its endeavor to carve a competitive
position when competition intensifies.
Management and
Policy Implications
The issue for both family and nonfam-
ily firms is how to maintain an effective
KOTEY AND FOLKER
balance between the positive attributes of
informal training and the market demand
for quality resources (including human
resources). Informal training may be
appropriate for small family firms as they
attend to the employment needs of family
members amid the uncertainty and fre-
quent changes that characterize firms at
this stage. Although over time formal
training programs that reflect market
trends will be necessary to sustain growth,
skills and knowledge transmitted through
the informal process will continue to be
relevant for building unique competitive
positions. Sirmon and Hitt (2003) pro-
posed a number of strategies that family
firms can use to achieve this balance in
human capital. These include increasing
heterogeneity in top management team
through (1) hiring nonfamily managers;
(2) encouraging family members to work
for other firms; (3) using outside boards;
and (4) alliances with other firms.
Managers and advisers would benefit
from recognizing the impact of firm
size on employee training in family and
nonfamily firms and that the two types
of firms adopt different approaches to
obtaining the level of human resources
necessary to remain and compete effec-
tively in the market. The findings should
enable development of appropriate
strategies to deal with each unique
situation.
Government intervention in training of
employees for SMEs should be more effec-
tive at the small level where firms are
unable to afford the resources needed to
train their staff. Such programs should
seek to minimize employee absence from
work and should be tailored to the specific
needs of the industry sector. In addition,
such an intervention would capture the
problem of limited employee training
where concentration of ownership inter-
est is high. Because nonfamily firms with
higher concentration of ownership inter-
est tend to be in the smaller category, their
training needs will be reasonably catered
for by such a policy.
233
 At the larger sizes (for both family and
nonfamily firms) where employee train-
ing becomes a competitive tool, exten-
sive government intervention in training
of managerial and operational employees
may interfere with market forces and
encourage the less efficient firms to
persist.
Contrary to the initial contention that
small family and nonfamily firms are
similar, the results showed that differ-
ences in employee training were evident
from the onset. This means family firms
are different from nonfamily firms even
at the small level and emphasizes the
importance of the family dimension in
management and SME research. A longi-
tudinal study of employee training prac-
tices of family and nonfamily firms as
they progress through various sizes
should complement the findings of this
research. Further, an investigation into
the association between training and per-
formance for family and nonfamily firms
should shed more light on the relative
effectiveness of the different approaches
to employee training.
Family firms were examined as one
entity although the literature indicates
that there are different types of family
firms (Basu 2004; Chua, Chrisman, and
Chang 2004; Birley 2001; Dunn 1995).
Thus, the samples of family and nonfam-
ily firms may not be absolutely homoge-
nous sets. These factors should be
considered in interpreting the findings.
Another limitation is the age of the data
set. However, it is likely that the two types
of firms have continued the same prac-
tices since the data were collected, and
the research is important both in inform-
ing managers as well as contributing to
the literature on employee training in
family and nonfamily SMEs.
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