Firms that have CEOs who have a sense of working in the name of their enduring family are much more likely to be internationally-focused, according to new research from Durham University Business School.
The researchers state that this is because these CEOs are much more likely to have a long-term outlook, and have greater security and support in their roles too, making them more likely to try and engage with longer-term international projects.
The study, conducted by Xinming He, Professor of Marketing and expert in international strategy at Durham University Business School, alongside Professors Feifei Liu and Tao Wang, both of Wuhan University, sought to understand the impact of clan culture – a collective culture among households originating from natural blood based on the same common ancestor – on crucial firm decisions, such as internationalisation.
To do so, the researchers analysed a sample of 285 publicly listed Chinese firms from 2012 to 2018. The data included the CEO’s characteristics; such as family they came from and their location. The researchers also reviewed the business decisions made by these firms as to whether work internationally or not, comparing their overall income to the percentage that came through international activities.
The researchers state that there are three reasons as to why clan CEOs are much more likely to have an internationally-focused strategy;
- Firstly, they have a long-term focus. Whilst international strategies can be risky in the short-term, they are likely to have longer-term benefits, which clan CEOs can wait for.
- Secondly, CEOs with a long-term outlook also value resilience. If a firm simply has a local outlook, then shocks and downturns in their country are likely to have a greater impact on that firm. However, if a firm operates more internationally, then they are much more likely to be able to mitigate risks and build resilience to these country-specific shocks.
- Thirdly, clan CEOs are more likely to secure support from stakeholders, including shareholders, suppliers, and distributors, due to their familiarity and the increased trust given to them, which can help them secure support for internationalisation.
The researchers also found that the domestic market, as well as the economic policy in their home country, can also impact on how internationally a firm chooses to operate. When the domestic market is intense, internationalisation becomes more appealing to CEOs, whereas when economic policy at home is uncertain, firms take a greater focus in their short-term, local efforts.
“Internationalisation is a strategy that comes with long-term benefits but also short-term risks.” says Prof Xinming He. “There is certainly a trade-off between the two, and the decision to become more internationally-focused or not often rests upon the values and preferences of the CEO. Those that have greater sense of serving their long-lasting family and believe they can look further towards the future in their positions – like clan CEOs – will take more of an international approach to their strategic decisions”.
The researchers state that these findings have important implications for firms, boards, and policy makers, including highlighting the importance of selecting a CEO whose managerial style matches the corporate culture and strategic target, such as hiring a CEO from a clan culture background if the firm wants to be international.
The researchers also state that selecting a CEO with clan culture background who values long-term orientation is a wise decision when the domestic market competition is stiff, and the economic policy is not uncertain.
Finally, for policy makers the findings showcase the importance of internationalisation too, and policy makers should look to provide a predictable and reliable environment which may help CEOs with stronger clan culture background to make international efforts.