From the August 1998 issue of Entrepreneur

You've finally made the decision to venture overseas. Now that you're starting to forge alliances with international partners, should you seek out family businesses such as your own? In most cases, the answer is yes.

Working with family businesses abroad is comparatively easy for family businesses in the United States. After all, well-run family businesses, no matter where in the world they're located, share many of the same characteristics. They have their family name on the door, their integrity is high, and they stake their personal reputation on their products or services. Family businesses worldwide take pride in their close relationships with customers. The CEOs and high-level executives in family businesses are generally also owners--which usually means they're easily accessible and stay in their positions for quite a while. Such stability helps these companies make solid decisions that lead to long-term success instead of being lured by short-term profits.

Family businesses often have one more major trait in common: their children, who also happen to be their successors, says Fran Thaw, founder and owner of Bulbtronics Inc., a 22-year-old Farmingdale, New York, specialty lighting company. Thaw, whose company buys bulbs from and sells bulbs to many companies in different countries, has a close personal relationship with the head of a family-owned business in England. When visiting the other's country, the business owners often stay at each other's homes. "We even had their son here for a couple of weeks teaching him what he needed to know to expand their business into medical lighting," Thaw says. Why all this closeness? "We have so much in common--family and business."


Patricia Schiff Estess writes family business histories and is the author of two books, Managing Alternative Work Arrangements (Crisp Publishing) and Money Advice for Your Successful Remarriage (Betterway Press).

Bonding Issues

There may be stronger bonds among family business owners from different countries, but in most cases, those bonds don't form automatically. "That bond is not immediate," confirms Ross Nager, executive director of the Arthur Andersen Center for Family Business in Houston. "People of different cultural backgrounds don't trust each other just because they're members of family businesses."

One possible roadblock to finding common ground lies in the fact that the largest businesses in many countries are family businesses--the equivalent of our Fortune 500, says Ernesto Poza, an international family business consultant and professor at Case Western Reserve University in Cleveland. "Given their size, they might be more sophisticated than midsized family businesses here," Poza says. "They have a lot of political clout in their own countries, and they might not be willing to spend their political capital unless they see the collaboration as one that's low risk with the possibility of a high return."

For midsized U.S. family firms, the complexity of doing business abroad puts another brake on forming alliances. "American family businesses look across the seas and have high expectations because of the vast market potential and [other countries'] desire for U.S. products and services," says Poza. But, he adds, with that potential comes a host of challenges--including everything from import/export laws and tax implications to unfamiliar distribution channels and cultural differences. "It's not that the [international] rules and customs are necessarily tougher than ours; it's just that they're different and have to be learned," he says.

Perhaps that's why U.S. family businesses haven't plunged headlong into the international marketplace--even with the necessary technology available at reasonable prices. Consider these statistics, culled from the Arthur Andersen/Mass Mutual Family Business Survey conducted last year: Just a modest percentage of U.S. family businesses generate international sales. Only 7.5 percent of businesses collect 11 percent to 50 percent of their revenue from business overseas, while just 1.6 percent generate more than 50 percent of their revenue from sources abroad. A majority of family firms (67.7 percent) don't generate any international sales.

Taking It Slow

Still, the entrepreneurial spirit that helps family businesses succeed from generation to generation plays well in the global arena . . . as long as you take certain steps:

  • Set aside capital. This market won't bloom overnight; you must identify and dedicate resources within your company to make it happen. If international expansion is to be taken seriously, it works well to have the project under the direction of a family member who has the enthusiasm and authority to make it happen.
  • Consult with advisors who have international skills. These professionals are well worth their cost. They have the experience and knowledge that can help you sidestep trouble and climb more quickly into a profitable alliance abroad.
  • Do your research. Have the family member heading the project meet with potential international distributors and customers to understand the differences that exist between your domestic market and the foreign market you're interested in. Have your advisors investigate the reputations of your potential foreign partners and distributors before signing any agreements.
  • Dip a toe. Don't commit to building a plant before you've established a distributor relationship or performed the research to ensure you have a product or service that foreign customers will pay for. Focus your resources on developing small successes in high-potential markets--one at a time.

Obviously, all your dealings abroad won't be with family businesses. But search them out whenever possible so you can capitalize on the characteristics you share. Says Nager, "If you find a family business abroad you can work with, your relationship will probably be stronger and longer-lasting than two companies working together which are not family owned and operated."

Contact Sources

Arthur Andersen Center for Family Business, 711 Louisiana, #1300, Houston, TX 77002, (800) 924-2770

Bulbtronics Inc., fax: (516) 249-6066, http://www.bulbtronics.com

E.J. Poza & Associates, (440) 247-6300, familybiz1@aol.com