Determinants of the Internationalization

Pathways of Family Firms: An Examination

of Family Influence
Chris Graves, Jill Thomas

Internationalization is recognized as a valuable strategy for organizations’ growth and

expansion; however, little is known about the internationalization behavior of family
firms. Using stage model theory, the internationalization processes of eight family firms
from their foundation to the present time are examined. Three key determinants of the
internationalization pathways taken by family firms are identified: the level of commit-
ment toward internationalization, the financial resources available, and the ability to
commit and use those financial resources to develop the required capabilities. Further-
more, how the family unit influenced these determinants is explored. The implications for
family business practitioners and ideas for future research are discussed.

Introduction mies (OECD, 1997), this study focuses on small-

Recent studies (Fernández & Nieto, 2005; Graves
& Thomas, 2004) suggest that family businesses
face unique barriers to international expansion.
However, to date, only a limited number of studies
have examined what factors unique to family busi-
nesses influence their international behavior. This
study explores the ways the family ownership and
management unit influences the internationaliza-
tion behavior of family enterprises. The findings
suggest that the family unit’s aspirations and atti-
tude toward risk taking, the vision and managerial
style of next-generation successors, the expertise
of working family members, the degree of family
harmony, and family equity-related issues all
influence the key determinants of the internation-
alization pathways undertaken by the family firm.
Because of a historical bias toward the research
of the globalization of large businesses (Coviello
& Munro, 1997; Lu & Beamish, 2001), and the
importance of the globalization of small-to-
medium enterprises (SMEs) for national econo-
to-medium-sized family enterprises (SMFEs).
Although a single agreed-upon definition of a
family business still remains elusive, there is
broad agreement that a business owned and
managed by a nuclear family is a family business
(Chua, Chrisman, & Sharma, 1999). Consistent
with the literature, this study defines a family
business as one that is majority family owned
and has at least one family member on the man-
agement team.
The contribution of this study is twofold. First
it elaborates on Bell, McNaughton, Young, and
Crick’s (2003) adaptation of the stage model
theory in that it provides support for its approach
to internationalization in the dominant organ-
isztional form of family-owned and managed
businesses. Furthermore, it identifies several
additional aspects that influence the international
pathways arising from the family unit ownership
and management. Second, it contributes to family
business practice through identifying a number
of aspects that are important for family business

FAMILY BUSINESS REVIEW, vol. XXI, no. 2, June 2008 © Family Firm Institute, Inc. 151
Graves, Thomas
owners and managers if they are to successfully
internationalize. These include making a long-
term commitment to an internationalization
strategy, ensuring the appropriate managerial
capabilities are developed, and making available
sufficient financial resources.
This article is organized as follows. First, an
overview of the theoretical foundation to the
study is presented and a brief overview of the
internationalization pathways of SMEs is given.
Second, the research on the internationalization of
family businesses is reviewed and the research
issue to be investigated in this study is presented.
Third, the research method, empirical analysis,
and discussion of the findings are presented. Con-
clusions from the study findings are then dis-
cussed, followed by some limitations of the study,
implications of the findings for family business
owners and managers, and ideas for future
research.
Internationalization Pathways
of SMEs
In the main, SMEs have entered the global market-
place through internationalization, that is, the
exploitation of their unique products and knowl-
edge globally from a domestic base. Although
SMEs engage in a range of different international-
ization strategies (e.g., licensing, establishing an
overseas sales office or a manufacturing plant),
exporting is considered the most common foreign
market entry mode due to the minimal business
risk and capital required (Leonidou & Katsikeas,
1996).
Different theoretical frameworks have been
used to examine the internationalization of SMEs,
including economic theories such as the eclectic
paradigm (e.g., L. E. Brouthers, Brouthers, &
Werner, 1999; K. D. Brouthers & Nakos, 2004) and
transaction cost economics (e.g., K. D. Brouthers &
Nakos, 2004; Erramilli & Rao, 1993), stage model
theory (e.g., Bell, 1995; Cavusgil, 1980; Johanson &
Wiedersheim-Paul, 1975), network theory (e.g.,
Chetty & Holm, 2000; Coviello & Munro, 1995),
and resource-based view theory (e.g., Graves
& Thomas, 2006; Knudsen & Madsen, 2002;
152
Westhead, Wright, & Ucbasaran, 2001). Because
this study is concerned with understanding the
internationalization process of SMFEs, particu-
larly the determinants of pathways taken, a stage
model theory of internationalization is used.
The stage model theory of internationalization
can be traced back to the work of Johanson and
Wiedersheim-Paul (1975) and Johanson and
Vahlne (1977) and is built on Penrose’s (1959)
theory of the growth of the firm and behavioral
theory of the firm (Cyert & March, 1963). Stage
models have been used to explain two patterns of
internationalization. First, they have been used to
explain why firms internationalize according to a
series of progressive steps: no regular exporting
activity; exporting via agents/distributors; sales
via sales subsidiaries; and, finally, the establish-
ment of overseas manufacturing plants. Second,
stage models have been used to explain why firms
select foreign markets based on psychic distance
(perceived foreignness of international markets
due to differences in language, culture, education,
industrial development, and politics) (Johanson
& Vahlne, 1990).
Following challenges to the soundness of a
“stage model” view of internationalization (e.g.,
Bell, 1995; Gankema, Snuit, & Van Dijken, 1997;
Knight & Cavusgil, 1996; Moen, 2002; Zafarullah,
Ali, & Young, 1998), Bell, McNaughton, Young, and
Crick (2003) proposed a variation that builds on
stage model theory that recognizes the “tradi-
tional” pathway as well as two other pathways
identified in more recent research: the “born
global” (Knight & Cavusgil, 1996) and the “born-
again global” (Bell, McNaughton, & Young, 2001)
pathways to internationalization.
The characteristics of the three different inter-
nationalization pathways of Bell, McNaughton,
Young, and Crick’s (2003) modified model are set
out in Table 1 in terms of the triggers, motivation,
expansion patterns, pace of expansion, method of
foreign market entry, strategy, and financing
options. For example, as highlighted in this table,
firms following a traditional pathway enter the
international marketplace in reaction to a particu-
lar event (trigger) such as an unsolicited order.
Their reaction to international opportunities is
 Determinants of the Internationalization Pathways of Family Firms
Table 1 Characteristics of Traditional, Born Global, and Born-Again Global Firms
Traditional Firms
Trigger Reactive (pushed)
Adverse domestic market
Unsolicited orders
Insufficient funds to finance
product or process
improvements
Reluctant management
Motivation Firm survival/growth
Increasing sales volume
Gaining market share
Extending product life cycle
Expansion Incremental
patterns Domestic expansion first
Focus on psychically close
markets
Target low-tech/less
sophisticated markets
Limited evidence of
networks
Pace Gradual
Slow internationalization
(focus on small number of
key markets)
Single market at a time
Method of entry Conventional
into foreign Use of agents/distributors or
markets wholesalers
Direct to customers
International Ad hoc and opportunistic
strategies Evidence of continued
reactive behavior to new
opportunities
Atomistic expansion,
unrelated new customers/
markets
Adaptation of existing
offerings
Financing Bootstrap into new markets
Government funding
Source: Bell, McNaughton, Young, and Crick (2003, pp. 346–347).
Born Global Firms
Proactive (active search)
Pursue global niche markets
Committed management
International from inception
Competitive advantage
First-mover advantage
Locking-in customers
Rapid penetration of global
niches or segments
Protecting and exploiting
proprietary knowledge
Concurrent
Commences with 2 years of
establishment
Near-simultaneous domestic
and export expansion
Not influenced by psychic
proximity of markets
Focus on lead markets
Some evidence of client
followership
Strong evidence of networks
Rapid
Speedy internationalization
(large number of markets)
Many markets at once
Flexible and networks
Use of agents, distributors,
licensing, joint ventures,
overseas production
Also evidence of integration
with client’s channels
Structured
Evidence of planned approach
to international expansion
Expansion of global networks
Global product development
Self-financed via rapid growth
Venture capital, initial public
offerings
Born-Again Global Firms
Reactive to critical event
(management buyout
(MBO), takeover,
acquisition, etc.)
Sudden change in focus
from domestic to global
orientation
Exploit new networks and
resources gained from
critical incident
Epoch of domestic market
orientation, followed by
dedicated and rapid
internationalization
Strong evidence of
networks (parent company’s
networks, client
followership, suppliers, &
other-channel partners)
Late/rapid
No internationalization
focus then rapid and
dedicated
internationalization
Several markets at once
Networks
Use of agents, distributors,
licensing, and joint ventures
Existing channel(s) of new
parent company, partner(s)
or client(s)
Reactive in response to
critical incident but more
planned thereafter
Expansion of newly
acquired networks
Adaptation/new product
development
Capital injection by parent
Refinancing after MBO
153
Graves, Thomas
primarily “motivated” by opportunities for
growth and survival. Traditional firms’ interna-
tional “expansion patterns” are very staged, incre-
mental in manner, and focus on psychically close
countries after domestic growth opportunities
have been exhausted. The “pace” of their interna-
tional expansion is slow and gradual, focusing on
one market at a time, and tends to be “financed”
out of retained earnings and owner contributions
(bootstrapping) as well as by government grants.
Conventional foreign “market entry strategies”
such as direct sales and the use of agents and
distributors are commonly used by traditional
firms, and their “international strategies” tend to
remain ad hoc, opportunistic, and reactive to
particular opportunities.
Table 1 also highlights the behavior of firms
considered born global as well as those following a
born-again global pathway. The latter pathway is
similar to that of traditional firms in that the
firm’s international expansion is in reaction to a
particular event (trigger) and follows a preoccu-
pation with the domestic marketplace (expansion
patterns). However, there are some key differences
between traditional firms and born-again global
firms. First, the trigger to internationalize is often
a “critical event” (or events) within the life of the
firm that brings about a change from a preoccu-
pation with the domestic marketplace to a global
orientation. Second, as a result of this dramatic
change, born-again globals often experience
rapid, dedicated, and planned international
growth to multiple markets concurrently.
Well-established firms that have previously focussed
on their domestic markets . . . suddenly embrace
rapid and dedicated internationalisation. To extend
the biblical analogy, their Pauline conversion and
subsequent zeal is often a result of a critical incident
on the road to Damascus. (Bell, McNaughton, &
Young, 2001, p. 174)
To date, because of the paucity of research on
the internationalization of family businesses, little
is known about what influences the international-
ization pathways undertaken by family firms.With
regard to triggers to internationalize, Okoroafo
(1999) highlighted that most family firms
154
commence internationalization as a result of
unsolicited orders, rarely monitor the interna-
tional marketplace, and have a low awareness of
government-sponsored export assistance pro-
grams. Research into the influence of succession
as a trigger for the internationalization of the
family firm has been mixed. Some studies suggest
that succession to the next generation, a process
unique to family firms, can have a profound effect
on their international behavior. For example,
Okoroafo’s (1999) study suggests that a family
firm’s commitment toward internationalization
decreases with postfounding-generation owners.
However, Fernández and Nieto (2005) found that
the commitment toward, and extent of, interna-
tionalization was positively associated with suc-
cession to the second generation. This suggests
further research is required to understand in what
circumstances succession will encourage interna-
tionalization. The family business literature also
suggests that family involvement can influence
international growth patterns. For example, anec-
dotal evidence suggests that family enterprises are
more likely to choose psychically close countries
when expanding globally (Harris, Martinez, &
Ward, 1994) and locate their operations in close
proximity to the residence of family members
(Kahn & Henderson, 1992; Shaw & Young, 2001).
This may explain why Zahra (2003) found that
family influence was positively associated with
international sales, but negatively associated with
the number of countries that the firm sold to.
Gallo, Arino, Manez, and Cappuyns (2002) argue
that the owning family’s preference for control, as
well as the family’s management style and values,
may significantly influence the ability of family
firms to enter strategic alliances with overseas
firms.
Because of their risk-averse nature and limited
growth aspirations (Donckels & Frohlich, 1991),
combined with their limited financial capital
(Smyrnios & Walker, 2003; Ward, 1997), it could be
argued that SMFEs are more likely to take a tradi-
tional pathway to internationalization, where
they grow incrementally by progressively entering
foreign markets with greater psychic distance.
This, however, is yet to be empirically examined.
 Determinants of the Internationalization Pathways of Family Firms
Because of the limited research examining the
internationalization behavior of family firms, the
following research issue is investigated: What are
the key determinants of the internationalization
pathways taken by small-to-medium-sized family
enterprises and in what way(s) does the family
unit influence these determinants?
Research Method
This study forms part of an ongoing investigation
on the internationalization of SMFEs. One of
the issues highlighted by an earlier stage of the
research is that the international growth of SMFEs
lags behind that of their nonfamily counterparts
(Graves & Thomas, 2004; Thomas & Graves, 2005).
To add to our understanding of why this might be,
this study utilized a qualitative case study research
approach to examine factors that may influence
the international behavior of family businesses
and, in particular, the internationalization path-
ways taken. Adopting a case-intensive methodol-
ogy also avoids collecting data that may be
superficial to understanding the particular family
business characteristics (Litz, 1997). As interna-
tionalization is a development process, collection
of data on the internationalization process of
SMFEs from their establishment to the present
time is essential (Melin, 1992).
Eisenhardt (1989) recommends that research-
ers select between four and 10 cases, as it may be
difficult to generate complex theory with less than
four, while greater than 10 can result in “death by
data asphyxiation” (Pettigrew, 1990, p. 281). For
this study, eight internationally active Australian
SMFEs from high and low internationalization-
intensive manufacturing industries were selected
to enable a more in-depth analysis of the quanti-
tative findings from earlier stages of this ongoing
research (Graves & Thomas, 2004, 2006; Thomas &
Graves, 2005). The degree of internationalization
was measured using two factors: internationaliza-
tion intensity (export sales dollars as a percentage
of total sales dollars) and scope (number of
foreign countries sold to). A range of generational
firms (first, second, and third+ generations) was
included, which assisted in examining the influ-
ence of multigenerational issues on the SMFE’s
internationalization process. To control the effect
of industry type on the internationalization
process, cases were selected from the manufactur-
ing sector. Consistent with the family firm defini-
tion outlined earlier in this article, internationally
active SMFEs selected had to be majority family
owned and family managed. A number of
sampling strategies were used to obtain the eight
case studies that met the criteria outlined above
(within SME sector, high and low internationaliza-
tion intensity manufacturing sectors represented,
family owned and managed, different genera-
tional firms represented, internationally active).
These included opportunistic, convenience, snow-
balling, and theoretical selection methods (Miles
& Huberman, 1994). Data were collected over a
2-year period (2003 and 2004) from a range of
sources, including interviews of senior managers
from each firm (34 in total), observations, notes
from 22 field visits, questionnaires, firm docu-
ments, and other archival records (82 in total)
such as newspaper articles on each firm (refer to
Table 2 for a summary of the characteristics of
firms and data collected). NVivo qualitative analy-
sis software was employed when carrying out this
research as it assisted the researchers in storing
and managing large quantities of data. NVivo was
a particularly useful tool for “thinking up” from
the data, that is, in linking data with emerging
concepts and themes, exploring linkages between
concepts within each case, across cases, and in
developing the overall conclusions of the study.
Empirical Analysis and Discussion
The eight SMFEs were classified according to the
internationalization pathway undertaken by com-
paring the characteristics of their international-
ization behavior with that of firms undertaking
the traditional, born global, and born-again
global internationalization pathways as outlined
in Table 1. For this study, the trigger, motivation,
pattern and pace of internationalization market
entry, international strategies, and financing of
international expansion (see Table 3) of each case
firm were examined. Six family firm cases were
155
156
Graves, Thomas

Table 2 Characteristics of Family Businesses Included in the Study

Case Manufacturing Size Extent of Ownership & Management Case Data Sources
Sector Internationalizationa
# of Sales % Family Generation Generation Participants Field Documents
Employees Turnover Owned With With Interviewed Visits
Ownership Management
Family Nonfamily

Bookworks Printing, publishing, & 8 $1m–$5m 32% (10) 100 1st 1st 2 1 3 7
recorded media
Starmould Petroleum, coal, chemical, 12 $1m–$5m 35% (26) 100 2nd 2nd 3 1 3 10
& associated product
manufacturing
Classic Wines Food, beverage, & 23 $6m–$9m 51% (9) 100 3rd 3rd/4th 4 3 3 10
tobacco manufacturing
Woodcraft Other manufacturing 24 $1m–$5m 1% (3) 100 2nd 1st/2nd 2 — 2 7
Polypro Petroleum, coal, chemical, 30 $1m–$5m 15% (4) 100 2nd 2nd 4 1 3 5
& associated product
manufacturing
Newline Textiles, clothing, footwear, 31 $1m–$5m 19% (8) 100 2nd 1st/2nd 2 2 3 4
& leather manufacturing
Longwear Textiles, clothing, footwear, 87 $10m–$19m 3% (14) 100 3rd 3rd 1 2 2 10
& leather manufacturing
Pioneer Wines Food, beverage, & tobacco 166 $20m–$49m 37% (29) 100 4th 4th/5th 2 4 3 29
manufacturing
20 14 22 82
a
Extent of internationalization is presented in terms of percent of gross annual sales make to foreign markets (intensity) and the number of foreign countries that the case
sold to (scope; displayed in parentheses).
 Determinants of the Internationalization Pathways of Family Firms
classified as having undertaken traditional path-
ways to internationalization and two as having
undertaken born-again global pathways. No firm
was classified as a born global firm as they were
not established with an aggressive global vision
(trigger) nor did they commence selling to foreign
markets within 2 years of establishment (expan-
sion patterns).
All aspects of the internationalization behavior
of Classic Wines, Woodcraft, and Longwear are
similar to that of traditional firms; thus their clas-
sification as following the traditional pathway to
internationalization was straightforward. Their
first steps were unplanned and reactive to external
events, consisted of gradual incremental stages of
international growth, initially focusing on psychi-
cally close countries, selling existing and modified
product lines through agents and distributors, and
financed out of internally generated funds. Book-
works, Polypro, and Newline were also classified
as taking traditional pathways (see Table 3).
Although some aspects of their internationaliza-
tion behaviour were similar to that of born-again
global firms, they did not experience the telltale
characteristics of such firms: dedicated and rapid
internationalization to several markets at once.
Starmould and Pioneer Wines exhibited inter-
nationalization behavior that is similar to that of
born-again global firms in that they were well-
established firms that had focused on the domes-
tic marketplace for a period of time, and then
suddenly embraced rapid and dedicated interna-
tionalization as a result of “critical incidents.” The
“critical incident” in both firms was succession to
the next generation, which brought about global
orientation and a long-term commitment to inter-
nationalization, as well as the development of the
organizational capabilities (through the appoint-
ment of requisite managerial expertise) that were
essential for successful international growth.
Based on the within- and across-case analysis of
the qualitative data, three particular determinants
of the internationalization pathways undertaken
by the eight SMFEs emerged, as diagrammatically
presented in Figure 1. These determinants are the
degree to which the owning family was committed
to internationalization, the amount of financial
resources available for (and willingness to commit
them to) internationalization, and each firm’s
ability to develop the requisite organizational
capabilities. Of particular interest for the family
business literature is the way the family unit has
an influence on these three determinants through
its influence on the firm’s strategic management
process and the firm’s stock of resources and
capabilities. The manner in which the family unit
influences these determinants is highlighted in
Figure 1 and is discussed below.
Determinant 1: Level of Commitment
to Internationalization
The level of commitment toward internationaliza-
tion was found to determine how aggressively
SMFEs leveraged their resources in the interna-
tional marketplace. As highlighted within the
firm’s strategic management process in Figure 1,
a SMFE’s commitment to internationalization was
found to be largely influenced by its vision and
objectives, whether the firm had opportunities to
grow domestically, and whether the family owners
took a long-term view of financial returns (patient
capital). With regard to vision, some family
owners did not aspire to “conquer the world,” but
were much more preoccupied with the domestic
marketplace. In three firms (Starmould, Pioneer
Wines, and Newline), succession to the next
generation brought about a change in vision of
the SMFE, which culminated in a strong long-
term commitment to internationalization. Family
member successors came with a fresh under-
standing of the importance of internationalization
for achieving firm objectives, including growth
and survival.
Richard’s [fourth-generation family CEO] father
just didn’t have any time for it [plans to venture
into international markets], so the whole thing
drifted and drifted and nothing really happened.
. . . There’s a generational attitude change [toward
internationalization] that has occurred since Richard
took over the reigns. (Roger, Pioneer Wines’ non-
family manager of North American office)
In one firm, however, succession to the next
generation brought about the opposite effect. In
157
 Table 3 Internationalization Behavior of the Case Firms
158
Issue Bookworks
Trigger/motivation Initially reactive (agent moving
overseas resulting in unsolicited
orders); subsequently proactive
after critical event (1st family
holiday overseas).
Internationalization Incremental; domestic market first
patterns then international; initially
psychically close countries; strong
evidence of global networks,
developed via trade fairs.
Pace of Commenced 8 years after
internationalization establishment; gradual
international growth, with
“epochs” of dramatic international
growth.
Method of entry Myriad, including direct to
into foreign customers, via agents, distributors,
markets joint ventures, licensing, and
foreign sales office; selection of
partners based on shared
long-term vision, trust, & personal
relationships; predominantly trade
with family businesses
internationally.
International Initially ad hoc & opportunistic,
strategies reactive to particular
circumstances; subsequently more
structured; use, & adaptation, of
existing products for foreign
markets.
Method of financing Internally generated funds,
internationalization shareholder funds (e.g., proceeds
from sale of personal assets), bank
finance, & government grants.
Starmould
Initially reactive (unsolicited orders);
subsequently proactive after critical
incident (succession to 2nd generation
& appointment of key manager with
requisite expertise).
Exponential; “epoch” of domestic
market orientation followed by
gradual then rapid
internationalization; initially
psychically close countries; strong
evidence of global networks,
developed via trade fairs.
Commenced 25 years after
establishment; initially minimal growth
(1st 20 years) followed by exponential
international growth.
Direct to customers and via
distributors; considered JV with
foreign firm to establish overseas
manufacturing plant; preference for
total control; selection of partners
based on shared long-term vision,
trust, & personal relationships; trade
with both family & nonfamily
businesses internationally.
Initially ad hoc & opportunistic,
reactive to particular circumstances;
subsequently more structured; use &
adaptation of existing products, &
importing new product lines, for
foreign markets.
Internally generated funds (cash flow
& retained profits), shareholder funds
(reinvestment of dividends), &
government grants.
Classic Wines
Initially reactive (limited domestic
opportunities); subsequently
reactive (unsolicited orders).
Incremental; “epoch” of domestic
market orientation followed by
gradual internationalization; initially
psychically close countries; limited
evidence of global networks and
highly reliant on agents.
Commenced 22 years after
establishment; gradual international
growth for 50 years, followed by
“epoch” of domestic market
orientation for 29 years; again
followed by gradual international
growth.
Use of both agents and distributors;
highly reliant on agents to drive
further internationalization;
predominantly trade with family
businesses internationally.
Initially rudimentary; subsequently
unstructured; use of existing, &
development of new, products for
foreign markets.
Internally generated funds (cash flow
& retained profits), particularly funds
generated from long-term
arrangement in supplying local
multinational.
Woodcraft
Initially reactive (limited domestic
opportunities, survival); subsequently
reactive (negative experience,
sales/marketing orientation, greater
domestic opportunities).
Graves, Thomas
Incremental; “epoch” of domestic
market orientation followed by
“epoch” of gradual
internationalization, followed by
domestic market orientation; initially
psychically distant countries; limited
evidence of global networks.
Commenced 24 years after
establishment; minimal international
growth, which ceased 6 years later.
Apart from one joint venture that
involved the use of a foreign
distributor, mainly direct to customers
via website; some support for a JV
with foreign firm in the future.
Initially structured/planned;
subsequently unplanned &
opportunistic; initially development of
new products for foreign markets;
subsequently use of existing products
for foreign markets.
Predominantly through internally
generated funds (retained profits) &
government grants.
 Issue Polypro
Trigger/motivation Initially reactive (takeover of key
customer by multinational);
subsequently both proactive
(critical incident being key local
customer being taken over by
multinational) and reactive (mixed
commitment in management
team).
Internationalization Incremental; domestic market first
patterns then international; initially
psychically distant countries;
strong evidence of global
networks, developed via trade
shows and industry associations.
Pace of Commenced 4 years after
internationalization establishment; gradual
international growth.
Method of entry Myriad, including direct to
into foreign customers, via agents, a joint
markets venture, and licensing; selection of
partners based on shared values,
trust, & personal relationships;
trade through family & nonfamily
businesses internationally.
International Initially ad hoc & opportunistic,
strategies reactive to particular
circumstances; subsequently still
unstructured/loosely planned; use
of existing products for foreign
markets.
Method of financing Bank finance; family loans.
internationalization
159
Newline
Initially reactive (unsolicited orders);
subsequently proactive after critical
incident (succession to 2nd
generation).
Incremental; domestic market first
then international; initially psychically
close & distant countries; strong
evidence of global networks,
developed via trade fairs.
Commenced 14 years after
establishment; gradual international
growth.
Distributors and a logistic firm that
provides sales support; plans to
establish overseas manufacturing plant
in medium to long term, possibly
through a joint venture; selection of
partners based on long-term vision,
based on personal relationships; trade
with both family & nonfamily
businesses internationally.
Initially ad hoc & opportunistic,
reactive to particular circumstances;
subsequently more structured; use &
adaptation of existing, & development
of new, products for foreign markets.
Internally generated funds (retained
profits), bank finance, & government
& industry grants.
Longwear
Initially and subsequently
reactive (unsolicited orders,
focus on domestic market,
vision to continue tradition of
being a local producer).
Static; domestic market first then
international; initially psychically close
countries; limited evidence of global
networks.
Commenced 70 years after
establishment; minimal
international growth.
Direct to customers, via website
and distributors.
Initially ad hoc & opportunistic,
reactive to particular circumstances;
subsequently unstructured/ unplanned;
use of existing
products for foreign markets.
Internally generated funds (retained
profits).
Pioneer Wines
Initially reactive (limited
growth opportunities) then
proactive after critical
incidents (succession to
4th-generation appointment
of key manager with requisite
expertise).
Exponential; “epoch” of domestic
market orientation followed by
gradual/rapid internationalization &
act as a local distributor for foreign
firms and manufacture products of
foreign firms under license; initially
psychically close countries & several
countries at once; strong evidence of
global networks, developed via trade
fairs.
Commenced 4 years after
establishment; gradual international
growth for 80 years, followed by
“epoch” of domestic market
orientation for 20 years; followed by
rapid international growth.
Direct to customers, via distributors
and foreign sales office; preference for
total control; selection of partners
based on shared values and long-term
vision, trust, long-term orientation, &
personal relationships; trade solely
with family businesses internationally.
Initially rudimentary; subsequently
more structured/planned; use &
adaptation of existing, & development
of new, products for foreign markets.
Internally generated funds (retained
profits), shareholder funds, bank
finance, & government grants.
Determinants of the Internationalization Pathways of Family Firms
Graves, Thomas
Figure 1 Effect of Family Influence on the Determinants of the Internationalization Pathways Undertaken by
SMFEs.
this firm, the next-generation family CEO did not
share his father’s belief in internationalization.
Also, the successor’s success in developing the
firm’s marketing capabilities resulted in strong
domestic sales growth, reducing the need to grow
internationally for survival. This suggests that the
effect of succession to the next generation on
the commitment to internationalization may be
dependent on the vision and qualities of the suc-
160
cessor. Furthermore, it was found that the ability
of the family CEO to bring about a commitment to
internationalization was dependent on his or her
ability in gaining the consensus of the family
owners and management.
What we had was a culture here of management not
subscribing to the [global] vision. To the extent
where one in particular had his own ambition of
what he personally would like to do. And this was a
 Determinants of the Internationalization Pathways of Family Firms
personal wish about where he wanted to be, not
where the company should be. So it was a personal
vision versus the company vision. (Baldric,
Bookworks’ family CEO)
SMFEs also had the challenge of managing mul-
tiple objectives, some of which conflicted with the
pursuit of international expansion, such as the
desire to remain wholly locally made because of
the owning family’s desire to protect local jobs (as
generations of the family have done previously)
or the desire to remain wholly family owned
and managed.
Longwear’s vision of being the best Australian manu-
facturer in its product range largely arose out of the
family’s strong commitment to its employees. Some
of its staff were third generation employees and were
treated like quasi-family members. (field notes,
Longwear)
This finding offers new insights into why SMFEs
may not pursue internationalization as aggres-
sively as their nonfamily counterparts. Because of
the critical importance of a long-term commit-
ment, family firms with patient capital were found
to be more likely to successfully internationalize
in the long term despite poor short-term results
from their international activities.
For us, a key point of difference from our major com-
petitors is that we’re family-owned. Because all
the . . . corporate entities tend to have a very short-
term time horizon for getting things done or making
things happen . . . We take a longer-term view on
market development, market growth. (Roger, Pioneer
Wines’ nonfamily manager of North American office)
Determinant 2: Funds Available for
International Growth
Analysis of the firms that had an ongoing commit-
ment to internationalization highlighted that the
internationalization pathway undertaken was
determined in part by their access to financial
resources, as well as their willingness to commit
financial resources to internationalization-related
activities.
I think . . . most family owned businesses thinking
about expansion face one major problem and that’s
called funding. Whether it is money to be spent on
marketing and business development or whether it is
money to invest in a new business or a new product
range for example. All family businesses have that
challenge. (Simon, Starmould’s family CEO)
Financial resources were required to fund inter-
national activities, such as exhibiting at interna-
tional trade fairs, and to bring about the changes
required within the firm for internationalization,
such as the development of its capabilities (par-
ticularly the firm’s production, managerial,
and marketing capabilities). As highlighted in
Figure 1, the financial resources available to the
firms were influenced by several factors, including
the firm’s willingness to borrow funds from finan-
cial institutions, the family equity-related issues
(patient capital, dividend policy), domestic mar-
ketplace performance, and access to government
and industry grants. Because of their risk-averse
nature and their desire (objective) to maintain
total control over the business, there was a general
reluctance among the family owners to raise
financial capital through loans from lending
institutions or by bringing in outside equity.
In the company’s history they’re completely against
owing money and borrowing money and it is only in
recent times and through adopting the disciplines of
a public company in terms of our accounting that
we’ve convinced the family and our bankers that this
is the way to go. (Raymond, nonfamily finance
manager of Pioneer Wines)
Rather, internally generated funds were the
most popular source of finance for international
growth strategies. This suggests that family firms
adhere to a pecking order when raising additional
finance, favoring internally generated equity over
long-term debt and outside equity.
Two firms (Starmould and Pioneer Wines),
however, did experience rapid international
growth, which was made possible because of the
internal funds generated from the dominant
market position of their brands in the domestic
marketplace.
What’s enabled the company to do that [exhibit at
internationaltradefairsannually]isasolidunderlying
business back home in Australia, which has produced
161
Graves, Thomas
the funds to enable the company to go and explore
export opportunities more aggressively. (Salvador,
Starmould’s nonfamily sales and marketing manager)
Family harmony was found to influence the
funds that a family firm had available for interna-
tionalization, through its influence on family
equity.In some cases,family conflict that resulted in
the pruning of the family ownership tree limited the
funds available for internationalization.
Well, we’ve already done that [borrowed funds] to buy
the non-active shareholders out. And that’s dead
money. It didn’t actually do anything for the business,
other than put an interest burden on the cash flow.
(Connor, Classic Wines’ family managing director)
Conversely, family harmony was found to
encourage family members to reinvest their divi-
dends in the business to fund growth and take
a longer-term perspective to financial return
(patient capital). Because family firms faced self-
imposed restrictions to accessing financial capital,
government and industry grants were found to be
an invaluable source of funds to assist them in
growing internationally.
In addition to having sufficient financial
resources, internationalization of the firms was
also dependent on the willingness of the working
family owners to commit financial resources to
internationalization-related strategies. This will-
ingness was largely determined by the working
family’s attitude to risk taking. Those firms with a
commitment to internationalization all exhibited
a tension over when to commit financial resources
to internationalization (chicken vs. egg dilemma).
For example:
I think Richard [fourth-generation family CEO] has
seen the need to spend the money to get the result.
Whereas before [under his father’s management]
you spend the money when you see the result but
that’s not always there. (Rodney, Pioneer’s nonfamily
manager of purchasing)
Determinant 3: Ability to Develop the
Organizational Capabilities Required
for Internationalization
In addition to having a long-term commitment
and the necessary financial resources, the ability
162
of an SMFE to grow internationally was dependent
on its ability to acquire and configure its resources
to develop globally relevant capabilities. As
highlighted in Figure 1, these included the
development of the firm’s international network
relationships and, particularly, their production,
managerial, and marketing capabilities. With
regard to production capabilities, it was critical
that SMFEs had sufficient production capacity to
meet both domestic and international demand,
the ability to reliably produce high-quality prod-
ucts at a globally competitive cost, and the ability
to develop innovative product lines, or adapt their
existing lines, to meet the requirements of inter-
national markets. Limited managerial capabilities
were found to negatively influence the rate at
which SMFEs grew internationally. For example,
Classic Wines’ objectives, such as the desire to
remain wholly family managed, restricted the firm
in obtaining the much-needed managerial exper-
tise required for further international growth.
It [inhibitor to international growth] would be our
ability to increase the breadth and depth of manage-
ment and still keep with the philosophy of that we
want to be a family-owned and managed organisa-
tion, that’s one of our goals. (Cameron, Classic
Wines’ nonfamily nonexecutive director)
To develop the required international network
relationships and the marketing capabilities, in
nearly all the firms it was considered important
for management to change from a production
mindset to a customer orientation. Managers with
a production mindset believed that sales growth
would occur as a consequence of producing good
quality, or innovative, products rather than
through the development, and execution, of
appropriate sales and marketing strategies for
products that meet the needs of customers in the
market segments targeted.
As highlighted in Figure 1, the ability of the case
firms to develop their managerial and marketing
capabilities was largely dependent on the exper-
tise of the working family members. As demon-
strated in the two firms that followed a born-again
global pathway, the development of an SMFE’s
managerial and marketing capabilities may
 Determinants of the Internationalization Pathways of Family Firms
require the appointment of a nonfamily manager
with the requisite expertise.
The culmination of Salvador [nonfamily manager of
sales and marketing] with Sean’s [second-generation
family CEO] export focus led to a very interesting
combination of people in the company. . . . Salva-
dor’s knowledge and experience in Europe about
marketing, merchandising and promotions was
exactly the kind of fit that the company required to
dramatically grow its export business. So the combi-
nation of the two led them working together to do
this. (Simon, Starmould’s family manager)
Network relationships were a critical resource
to grow the family business internationally, but
particularly the personal family networks. Sean
(Starmould’s second-generation family CEO)
asked one of the firm’s local clients for an intro-
duction to a distributor in northern Europe,
whom this client knew personally. This introduc-
tion led to the formation of a business relationship
and the distributor was so impressed with Star-
mould that he told “all his mates all the way
around Europe . . . how good Starmould was.”
Sean attributes 40% of Starmould’s international
sales to the relationship with this distributor.
Another example was observed in Pioneer Wines.
Being a family-run business helped secure contracts
in Asia. Asian business people look far more favour-
ably on dealing with a member of the family
that owns the company. (Pioneer Wines secondary
documentation)
It is therefore critically important that family
members are willing and able to travel interna-
tionally to build such relationships as well as to
exhibit at international trade fairs. However, the
demands of international travel placed strain not
only on family managers but also on their part-
ners and children, as well as on the management
of the business as a whole. As a consequence, it is
an advantage if a family business has family
members who enjoy international travel and have
in place sufficient managerial capabilities to cover
family managers while overseas. It is also impor-
tant to select family members who are competent
at networking and who are able to present a favor-
able image of the business overseas.
Conclusions
The findings of this study suggest that most
SMFEs will follow a traditional pathway to inter-
nationalization, with the key determinants of the
chosen pathway being the level of commit-
ment toward internationalization, the financial
resources available, and the ability to commit and
use those financial resources to develop the
required capabilities.
Several reasons can be put forward as to why
the majority of these family business case firms
followed a traditional pathway to internationaliza-
tion. First, the execution of (and ongoing commit-
ment to) internationalization-related strategies
within SMFEs is dependent on gaining the con-
sensus of the family unit as well as managing mul-
tiple and sometimes conflicting objectives. Many
family firms may not pursue international expan-
sion aggressively because of their willingness to
forego financial returns to achieve noneconomic
benefits (Chrisman, Chua, & Sharma, 2005), such
as continuing the tradition of being a local pro-
ducer. This finding is consistent with previous
family business research suggesting that SMFEs
are more likely to exhibit growth profiles typical
of lifestyle firms (Graves & Thomas, 2004). It is
also possible that some family members consider
themselves “stewards” of the family wealth and
were keen to pursue growth internationally, albeit
cautiously. Stewardship theory proposes that the
“steward protects and maximizes shareholders’
wealth through firm performance, because, by so
doing, the steward’s utility functions are maxi-
mized” (Davis, Schoorman, & Donaldson, 1997,
p. 25). Second, because of their preference for
privacy and control, SMFEs face a self-imposed
financing pecking order, favoring internally gen-
erated equity over long-term debt and outside
equity. As a consequence, the performance of
family firms in the domestic marketplace largely
determined the funds they had available for inter-
national growth strategies and therefore the pace
of their internationalization. Although the exist-
ence of a financing pecking order within family
businesses is consistent with previous research
(Gallo, Tapies, & Cappuyns, 2004; Poutziouris,
163
Graves, Thomas
2001; Romano, Tanewski, & Smyrnios, 2000), this
study builds on prior research by highlighting the
influence of the pecking order on the interna-
tional growth of family firms. This study also
highlighted that family harmony can influence the
family firm’s funds available for internationaliza-
tion through the effect on the ownership struc-
ture, dividend policy, and the creation of patient
capital. Third, this study found that SMFEs often
lack the managerial capabilities to effectively
manage international growth. Based on recent
findings reported by Graves and Thomas (2006),
which found that the managerial capabilities of
SMFEs lagged behind that of their nonfamily
counterparts, compared to their nonfamily coun-
terparts, SMFEs will face greater obstacles to
growing internationally because of their limited
managerial capabilities.
This study makes an important contribution to
the family business and SME internationalization
literature by highlighting the fact that family-
related issues have a significant influence on
the internationalization pathways undertaken by
SMFEs. The particular aspects of the owning and
managing a family unit that emerged as being
influential include the family unit’s aspirations
and attitude towards risk taking, the vision and
qualities of next-generation successors, expertise
of working family members, degree of family
harmony, and family equity-related issues.
Whether these aspects of the family unit facilitate
or inhibit the international growth of family firms
appears to depend on how they affect the three key
determinants of internationalization of family
firms identified in this study.
In addition to the born-again triggers, such as
MBO, takeover, and acquisition, identified by Bell,
McNaughton, Young, and Crick (2003), this study
has shown that succession to the next generation
of family, a process unique to family firms, can
also be a trigger for family firms to pursue a born-
again pathway to internationalization. However,
contrary to Fernández and Nieto’s (2005)
research, it has shown that succession to the
second generation does not always lead to the
internationalization of a SMFE; in certain circum-
stances, it can lead to de-internationalization. This
164
suggests that the effect of succession to the next
generation on the commitment to international-
ization may be dependent on the vision and quali-
ties of the successor and is an area for future
research.
Implications for Family Business
Owners and Managers
To successfully grow internationally, the family
and the business must be willing to make a long-
term commitment to internationalization and
reach consensus about their objectives. Managing
sometimes conflicting objectives emphasizes the
importance for family firms of having a strategic
planning process, such as the parallel planning
process (PPP) proposed by Carlock and Ward
(2001), so that the needs of both the family and the
business can be considered when assessing the
appropriateness of an internationalization strat-
egy. The PPP is also useful for identifying the
resources and capabilities that will need to be
acquired or developed in order to execute the
intended internationalization strategy (gap
analysis), how they will be obtained, and the
organizational change that will need to occur to
bring this about.
Although government grants can be a useful
source of finance (and knowledge) for family
firms in the early stages of internationalization,
they are not sufficient to build an international-
ized family business. Unless a family firm enjoys a
dominant position in the domestic marketplace, it
will need to raise the necessary funds through
industry grants, debt, and/or equity finance. This
may mean taking greater risks (higher gearing
ratios) or the family relinquishing some of its
control (outside equity). Failure to raise and
commit sufficient financial resources to the execu-
tion of an internationalization strategy may
expose the family business to risks greater than
those faced by domestically focused family firms
(Moini, 1995).
As they grow internationally, it is important that
family firms have the managerial capabilities
to manage that growth. Through appointing
additional managers, management education,
 Determinants of the Internationalization Pathways of Family Firms
and adopting modern management practices, the
international growth of the family firm can be
effectively managed to minimize the strain placed
on both the family and domestic operations, as
well as releasing family members to represent the
firm overseas at trade fairs. It also enables family
firms to more effectively manage (and be comfort-
able with) the risks associated with undertaking
additional debt to finance growth. It is critical that
the requisite international business networks
and marketing capabilities are developed. Family
manufacturing businesses are often very profi-
cient and innovative in what they produce. The
challenge they face is making the transition from
a production mindset to a customer orientation.
Failure to do so puts family firms at risk of
remaining “hidden champions” as suggested
above: leaders in what they produce but largely
unknown on the international stage. Forming
network relationships with overseas firms that
possess the capabilities required to grow the
family firm’s sales at a rate appropriate for its pro-
duction capacity is one of the most important
steps that they can make to internationalize.
Limitations and Opportunities for
Future Research
Despite the advantages of the qualitative analysis
employed in this study,such as answering questions
that other methods cannot (and in greater depth),
there are three key limitations. First, the qualitative
analysis of the eight case firms is restricted to the
Australian manufacturing industry and therefore
the findings may have limited generalizability to
otherindustriesandcountries.Second,becausethis
study is restricted to eight case studies, there is the
risk that the conclusions developed from the quali-
tative data analysis are idiosyncratic with limited
generalizability to other organizational contexts.
However, where possible, this risk has been mini-
mized as it is part on an ongoing study where the
findings from both the quantitative and qualitative
data analyses have been compared and contrasted
when developing the overall conclusions in this
article. Third, because the qualitative analysis was
limited to SMFEs, it is not known whether all the
influences on internationalization identified in this
study are unique to SMFEs or are common to all
SMEs (i.e., SMFEs and non-SMFEs). Some of this
study’s findings are clearly unique to family firms.
For example, consistent with the findings of an
earlier stage of this ongoing investigation (Graves &
Thomas, 2006), the limited managerial capabilities
of SMFEs affects both their ability to grow interna-
tionally as well as associated outcomes. Another
example is where succession to the next generation
was found to be a catalyst for bringing about the
changesrequiredforinternationalizationincertain
circumstances.Conversely,it is not known whether
the problem of a production mindset of SMFE
managers is also encountered by non-SMFEs.
Because of the exploratory nature of this study,
further empirical research is required to examine
the findings presented in this study. It would be
valuable to explore the attitudes of the different
family member managers as being stewards of the
family wealth and how this may affect their enthu-
siasm for internationalization. Understanding of
whether SMFEs that place greater emphasis on
family considerations (family first) are more likely
to adopt foreign entry methods that are less intru-
sive on family life would emerge from such a
study. Also of interest would be further explora-
tion of what tensions existed between key players’
family and business lives and how these tensions
affected their international aspirations.
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4782; chris.graves@adelaide.edu.au.
Dr. Jill Thomas, University of Adelaide Business
School; tel: +61 8 8303 4911 (work); fax: +61 8 8223
4782; jill.thomas@adelaide.edu.au.
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