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FamilySystemversusEconomicSystem:

ChineseFamilyBusinessNetworksinTaiwan

WenyiChu

AssociateProfessor

NationalTaiwanUniversity

85,Lane144,KeelungRoad,Sec.4

Taipei,Taiwan

Phone:(+886)22363-0231

Fax:(+886)22364-5141

E-mail:wenyichu@.tw

FamilySystemversusEconomicSystem:ChineseFamilyBusinessNetworksinTaiwan

ABSTRACT

AnimportantorganizationalfeatureofChinesefamilyfirmsisthattheyareorganizedthrougha

networkofsmallandmedium-sizedfirmsinter-linkedtooneanotherthroughtiesofkinshipand

personalrelationships.Basedontheconceptofinstitutionaloverlaps,thisresearcharguesthat

themanagementofChinesefamilybusinessnetworksinTaiwanissimultaneouslyinfluencedby

twodifferentfactors:family/interpersonalfactors,andeconomic/strategicfactors.Byusingdata

collectedfrom122affiliatedcompaniesoftwenty-eightfamilybusinessnetworksinTaiwan,

thisresearchfoundthattheinternalorganizationsoffamilybusinessnetworksareinfluenced

bothbyfamilybusinessconsiderationsandeconomicefficiencyconsiderations,butthe

influenceofeconomicfactorsismoresignificant.ThisresearchshowsthatalthoughTaiwanese

familybusinessnetworkshavenotcompletedthetransformationfromentrepreneurialcontrolto

professionalmanagement,mostfamilybusinessnetworkshaveadoptedaninternalorganization

thatfollowssomebasiceconomicrationalesproposedintheWesternliterature.

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FamilySystemversusEconomicSystem:ChineseFamilyBusinessNetworksinTaiwan

Introduction

Inrecentdecadesthemostimportantinnovationsinbusinessmanagementareemergingin

thefast-growingregionoftheworld –theSoutheastAsia.Inthisregion,mosteconomiesare

dominatedbyoverseasChinesefamilybusinesses(Seagrave,1995;WeidenbaumandHughes,

1996),especiallyinthethreeoverseasChineseeconomies:Taiwan,HongKong,andSingapore.

OverseasChinesefamilybusinesseshavegainedawidereputationforcostefficiency,

responsiveness,flexibility,andglobalcompetitiveness(Carney,1998).Theirsignificant

economicperformancehasalsosetsoffanemerginglineofstudiesontheinstitutionaland

economicstructureofEastAsiancapitalismaswellastheorganizationalcharacteristicsof

Chinesefamilyfirms(e.g.Hamilton&Biggart,1988;WeidenbaumandHughes,1996).

MostexistingstudiesonChinesefamilyfirmsfollowtheinstitutionalperspectiveto

examineorganizationalisomorphisminChineseeconomiccommunities.Scholarsarguethat,

duetosomehistorical,political,socialandculturebackgrounds,overseasChinesefamilyfirms

tendtobesmallinsize,onlyengageinfewstagesofthevalue-addedactivities,andrelyheavily

onpersonalrelationsandpersonaltrusttoreducetransactionaluncertaintiesandrisks(Hamilton

andBiggart,1988;HamiltonandKao,1990;Kao,1993;Orru,BiggartandHamilton,1991;

Redding,1996;Whitley,1990;Wong,1996).Therefore,animportantorganizationalfeatureof

Chinesefamilyfirmsisthe weakorganizations,“stronglinkages”(Redding,1996)patternof

operations:firmsareorganizedthroughanetworkofseveralsmallandmedium-sizedfirmsthat

areinterlinked,connectedtooneanotherandsocreatingcooperativenetworksoffirmsthrough

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kinshipcircleandtiesofcommonorigins.Manyscholarshaverecognizedfamiliesand

networksasthebasicsocialinstitutionsofTaiwan ’sbusinesses(e.g.Greenhalgh,1988;

HamiltonandKao,1987;Kao,1996).

Althoughtheseexistingstudiesprovidesomeanswersonhowinstitutional/contextual

environmentsmakethefamilybusinessnetworkadominantformofbusinessorganizations

amongoverseasChinesebusinesses,fewresearcheffortshavebeengrantedtotheinternal

administrativearrangementsofChinesefamilybusinessnetworks.Forinstance,arethecontrol

stylesoftheparentalfoundingentrepreneurandthesecondgenerationdifferent?Do

professionalmanagersandfamilymanagersreceivethesamelevelofdecision-making

autonomy?Towhatleveldotheinternalorganizationsfitexternalstrategicandindustrial

requirementsfacingfirms?AsFukuyama(1995)andDuncanandFlamholtz(1982)pointedout,

thegreatestdifficultyfacingChinesefamilybusinessesisthetransitionfromentrepreneurial

managementtoprofessionalmanagement.However,infamilybusinesses,thecomplexof

emotionsandbusinessneedsmaketheseissueofcorporategovernanceparticularlydifficultto

answer(Magretta,1998),andthehighemphasisofpersonaltiesandpersonaltrustmayobstacle

thetransitionofChinesefamilybusinessfirms(Carney,1998).

Therefore,thepurposeofthisstudyistoempiricallyexaminetheinternalorganizations,

specifically,thelevelofcentralizationanddecentralization,ofChinesefamilybusiness

networksinTaiwan.Thisstudyaimstoprovideanswersonhowtheinternalorganizationsof

Taiwanesefamilybusinessnetworksareinfluencedbyfamily/personalfactorsandby

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economic/strategicfactors.

TheoreticalFoundations

Thisresearchemploystheconceptof “institutionaloverlap ”offamilyfirmsproposedby

Lansberg(1983).AccordingtoLansberg,differentfromtypicalmodernfirmsthatare

characterizedbytheseparationofownershipandcontrol(Fama,1980;FamaandJensen,1983),

familyownershipandfamilycontrolco-existandinfluencethechoiceofcorporategovernance

infamilybusinessorganizations.Therefore,familybusinessorganizationsexistonthe

boundariesoftwoqualitativelydifferentsocialinstitutions –thefamilyandthebusiness.Each

institutiondefinessocialrelationsintermsofuniquesetofvalues,norms,andprinciples,and

hasitsownrulesofconduct.Asafamilyinstitution,organizationdesignshouldreflectpersonal

trustandsocialtiestoassurethecareandnurturanceoffamilymembers.Asabusiness

institution,organizationdesignshouldfolloweconomicrationalestopursueefficiencyand

effectiveness.Theco-existenceofthesetwoinstitutionsmakesthemanagementoffamilyfirms

particularlycomplicatedbecausewhatisexpectedfromindividualsintermsoffamilyprinciples

oftenviolateswhatisexpectedfromthemaccordingtobusinessprinciples(Carney,1998;Chen,

1995;DuncanandFlamholtz,1982;Kepner,1983;Lansberg,1983).Therefore,thissection

reviewstwolinesofliteratureonthedeterminantsofinternalorganizationsoffamilyfirms,to

identifypossibleimportantfactors.Hypothesesarethendeveloped.

FamilyBusinessasaFamilySystem

Asafamilyinstitution,thefamilyfirmrepresentsasocialsystemendorsedbylawand

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customtotakecareofandtomanageitsmembers ’needs,suchastheneedforbelonging,

affection,intimacy,andsenseofidentity(Kepner,1983).Therefore,inadditiontoprovidingfor

theeconomicsecurityforitsmembers,thefamilybusinessfirmmustsatisfydeepsocialand

emotionalneeds.Toachievethis,thetopmanagementofafamilybusinessfirmmustbeableto

clearlydistinguishfamilymembersfromnon-familymembers,andtodesignthecontroland

delegationsystemsaccordingly.

Ifweviewthefamilybusinessorganizationasasocialnetwork,fromthesocialnetworkand

embeddednessperspective,economicactionsareembeddedinstructuresofsocialrelations,

whichformsocialnorms,rulesandobligations,furtherdirectthedecisionsofeconomic

exchanges(Granovetter,1985).Informalsocialrelations,suchasethnic,regional,religious,

educationalandfamilyties,cangeneratesocialcapitalandtrustworthinessbetweenactorsand

amongactors,furtherdevelopaclosedcommunity,i.e.anetwork(Coleman,1988).Foractors

belongedtothenetworksystem,economicexchangesaresafeguardednotbycontract(price

mechanism)orequity(authoritymechanism),butbythemutualobligations,expectation,and

trustworthinessofmembersgrantedbythenetwork(Coleman,1988;Powell,1990).Therefore,

withinafamilyorganization,thedesignofgovernancestructure,specificallythedistributionof

poweranddecision-makingautonomy,istofacilitateexistingpersonaltrustandsocialcapital

withinthebusinessnetwork.

SimilarargumentshavebeenproposedinstudiesonChinesebusinesses(e.g.,Farh,Tsui,

XinandCheng,1998;Kao,1996;Tong&Yong,1998).ItisparticularlyimportantinChinese

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businesscommunitytoseparatetheinnercircle(i.e.,familymembers,closerelatives,and

honoraryfamilymemberssuchasalong-serving,loyalmanagers)andtheoutercircle(i.e.,

professionalmanagers).Adifferentiatedleveloftrustworthinesswillbegrantedtomanagers

belongingtotheinnercircleversusmanagersbelongingtotheoutercircle.Therefore,family

membership,trustworthinessofmanagers,andthefounder/entrepreneur’smanagerialideology

areexpectedtoinfluencethechoiceofcentralizationanddecentralizationwithinChinese

familybusinessnetworks.

First,ashavebeenpointedoutbyscholarssuchasHamiltonandKao(1987)andWong

(1996),ChinesebusinessesaredependentonwhatMaxWebercalled “particularistictrust ”

rootedinthe “communityofblood ”andresteduponpurelypersonal,familial,orsemi-familial

relationships.Kinshipandfamilytiesthusplayacriticalroleinfacilitatingtrustandrelations

withintheorganizationsofChinesefamilyfirms.Therefore,whetherthegeneralmanagerofan

affiliatedcompanyisafamilymemberoraprofessional(non-family)managermayinfluence

howthisaffiliatedcompanyiscontrolledbythecorporatecenter.Similarly,fromtheagency

theoryperspective,becausethemoralhazardandopportunisticbehaviorsthatagentsare

pertainedtoareexpectedtohappeninnon-familyemployeesratherthaninfamilymembers

(DailyandDollinger,1993),themanagementstylesandmotivationsoffamilyversus

non-familymanagersarethusdifferent.Professionalmanagersaremorelikelytoseekto

maximizetheirownbenefitsratherthanthevalueofthefirm,andtheyseldommaintainloyalty

toanyoneorganization(Alcorn,1982;Barach,1984).Therefore,thefamilyfirmmaygrantless

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autonomytothoseaffiliatedcompanieswithprofessionalmanagers;whileforfamilymanagers

whohaveownershipinterests,alessformalsystem,i.e.,thefamilysystem,isexpected.Itis

thushypothesizedthat,

Hypothesis1:Inafamilybusinessnetwork,familygeneralmanagerswillreceiveahigher

levelofautonomythanprofessionalgeneralmanagersdo.

Second,thelongeranindividualworkforafamilyorganization,themorefamiliarthe

personwaslikelytobewithitspeople,normsandculture.Morespecifically,alongserving

managerwillbemorelikelytodevelopstronginterpersonaltieswiththefamilyaswellaswith

theorganization,furthergeneratingahighlevelofsocialembeddedness(Granovetter,1985).

RecentstudiesonChinesefamilybusinessreportthatethnicChinesefamilybusinessgroups

oftenshowanearfanaticalreluctancetoadmitprofessionalmanagersintotheinnercircleofthe

firms(Chen,1995;Weidenbaum,1996;WeidenbaumandHughes,1996).Mostofthetop

managementpositionsarefilledbyfamilymembers,withotherstrategicpositionsreservedfor

closerelativesandforthosewhomhaveworkedforthefamilyforalongperiodoftime.Inother

words,professionalmanagerscanbeinpowerbecausetheyhavebeenservingthefamilyfor

longtime,shownacertaindegreeof “managerloyalty ”(Chen,1995)andbecome

familymembers ”(Weidenbaum,1996).Therefore,

Hypothesis2:Inafamilybusinessnetwork,thelongerageneralmanagerofanaffiliated

companyhasservedwiththefamilybusinessnetwork,themoreautonomyisownedbythis

affiliatedcompany.

“honorary

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Finally,deeplyrootedinthelegaciesofChinesehistory,paternalismandpaternalistic

leadershipisaprevalentphenomenoninChineseorganizations(Redding,1996).The

paternalisticleadershipstyleisbasedonsomepersistentcommonvaluesintheConfucian

tradition,suchasacodeofdefinedconductbetweenchildrenandadults,andloyaltytoa

hierarchicalstructureofauthority,andarecommonlyinherentinthemanagerialmentalityofthe

founder/entrepreneurofChinesefamilybusinesses(Redding,1996).Thesecondorthird

generationsofthefamilyusuallyreceivehighereducationinWesterncountriesandareeasierto

adopttomodernmanagementknowledge.Therefore,thetransitionfromentrepreneurialcontrol

ofthefirstgenerationtoprofessionalmanagementofthesecondgenerationbecomesacritical

issueinChinesefamilybusinessfirms(Fukuyama,1995).Scholarsalsopointedoutthat

founder/entrepreneur-managedfirmsseldomutilizeformalmeasurementproceduresandprefers

acentralizedappraisalsystem;whiletheprofessionallymanagedfirmsischaracterizedbythe

useofwell-definedinternalcontrolproceduresandadecentralizedsystem(Daily&Dollinger,

1993;Flamholtz,1986;Whisler,1988).Therefore,itishypothesizedthat,

Hypothesis3:Thoseaffiliatedcompaniesassociatedwithafamilybusinessnetworkthatis

controlledbythefoundingentrepreneurwillobtainlessautonomythanthoseaffiliated

companiesassociatedwithafamilybusinessnetworkthatiscontrolledbythesecond

generation.

FamilyBusinessasanEconomicSystem

Asabusinessinstitution,familybusinessfirmsareunderthepressuretofollow

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professionalismandtopursueeconomicefficiency.Theeconomicrationalesthusrequirefamily

businessfirmstoadoptaninternationalorganizationthatcancopeefficientlywithtaskand

environmentalrequirements(Galbraith,1977;PfefferandSalancik,1978).

Withrespecttotheinfluenceofindustrialcharacteristics,theinformationprocessing

perspective(Galbraith,1977;NadlerandTushman,1988)arguesthattheappropriate

organizationdesignistohelpthesub-unittodealwithitsinformationprocessingrequirement

resultingfromtheuncertaintyofexternalenvironment.Thisargumentisobviouslyapplicableto

familybusinessnetworks:differentaffiliatedcompaniescompeteindifferentindustriesandthus

facedifferentlevelsofenvironmentaluncertainty.Anaffiliatedcompanythatcompetesinan

industrywithhighenvironmentalcomplexityanddynamicsneedsamoredecentralized

organizationbecauseitneedstodealeffectivelywithhighinformationprocessingrequirements

andtoreactquicklytoenvironmentalchanges.Conversely,foranaffiliatedcompanycompeting

inindustriesoflowlevelsofcomplexity,amorecentralizedcontrolsystemcouldbeadopted

(Govindarajan,1986).Therefore,itishypothesizedthat,

Hypothesis4:Inafamilybusinessnetwork,thehighertheenvironmentalcomplexityfaced

byanaffiliatedcompany,themoreautonomyisownedbythisaffiliatedcompany.

Second,thedegreeofresourcesharingandskilltransfersamongaffiliatedcompaniesofa

familybusinessnetworkalsoaffecttheappropriatelevelofdelegation.Resourcesharingrefers

totheextenttowhichafocalmembercompanysharesfunctionalactivities(suchasmarketing,

manufacturing,R&D,andhumancapital)withothercompanieswithinthebusinessnetwork.

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Resourcesharingamongaffiliatedcompaniescouldbeasourceofvaluebecausehigh

resource-sharingmayyieldasynergisticcostadvantageinthattheaffiliatedcompanycan

accessthesharedresourceatalowercostthantheywouldhaveiftheyeachhadtoacquireit

separately(Gupta&Govindarajan,1986;Porter,1985).Inafamilybusinessnetwork,since

differentaffiliatedcompaniescanhavedifferentlevelsofresourcesharingwithothercompanies,

theappropriatelevelsofdecentralizationshoulddifferaccordingly.Whenanaffiliated

company’slevelofresourcesharingishigh,theneedforfamilyinterventionandcentral

coordinationisstrongandamorecentralizedcontrolstyleissuggested.Conversely,when

inter-companyresourcesharingislow,adecentralizedcontrolstyleisproposed.Therefore,

Hypothesis5:Inafamilybusinessnetwork,thehigheranaffiliatedcompany sresource ’

sharingwithotheraffiliatedcompanies,thelessautonomyisownedbythisaffiliatedcompany.

Finally,theconceptofinterdependenceintroducedbyThompson(1967)wasemployed.

Thompsonidentifiedthreetypesofinterdependencethatexistbetweenorganizationalsub-units:

pooled,sequential,andreciprocal.Pooledinterdependencereferstothecasewhen

organizationalmemberssharecommonresourcesbutarequiteautonomous.Sequential

interdependenceexistswhentheoutputofonepartoftheorganizationistheinputofanother

partoftheorganization.Reciprocalinterdependenceisthemostcomplexsituation,when

organizationalunitsarereciprocallyinterdependentbyfeedingtheirworkbackandforthamong

themselves.AsarguedbyBaligaandJaeger(1984),thedegreeofinterdependenceamong

sub-unitsisthemostcrucialdeterminantoforganizationalcontrolsystems.Theyarguethat

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underconditionsofpooledinterdependence,coordinationislessimportant;whilein

circumstancesofsequentialinterdependenceorreciprocalinterdependence,morecoordination

andnegotiationbetweenandamongsub-unitsisrequiredsothatamorecentralizedcontrol

systemisappropriate.Therefore,itishypothesizedthat,

Hypothesis6:Inafamilybusinessnetwork,themoreinterdependentanaffiliatedcompany

iswithotheraffiliatedcompanies,thelessautonomyisownedbythisaffiliatedcompany.

ResearchMethod

DefinitionofFamilybusinessNetworks

Variousmethodshavebeenproposedintheliteraturetodefinethefamilybusiness(e.g.,

DailyandDollinger,1993;Handler,1989;Litz,1995).Consideringdefinitionclarityand

businesspracticesinTaiwan,thisstudydefinedthefamilybusinessnetworkasagroupof

companiesthatareinter-linkedbyfamilyownershipandfamilymanagement.Forexample,the

FormosaPlasticsGroupsoftheWangfamily,theFarEastGroupoftheHsufamily,andthe

ChingFongGroupoftheHuangfamily.Consistentwithexistingstudies,thisdefinition

emphasizesbothfamilyownershipandfamilyinvolvementinmanagement(Alcorn,1982;Dyer,

1986;Handler,1989;Litz,1995).

Sample

Toidentifytheresearchsample,theauthorcheckthetop115businessnetworkslistedinthe

BusinessGroupsinTaiwan(ChinaCreditInformationServiceLimited,CCIS,1996/97edition).

Thisstudy ’srelianceondirectorydataforsampleidentificationwasduetothefollowing

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reasons:(a)MostoftheaffiliatedcompaniesofTaiwanesebusinessnetworksaresmallinsize

andnotpubliclylisted,makingthesecondarydatabaseprobablytheonlysystematicsourceof

companyinformation.(b)Utilizationofdirectorydataenablesresearcherstoaccumulateand

compareresearchfindings.Forexample,HamiltonandKao(1990)alsoutilizedtheCCIS

databasetoexaminetheinstitutionalfoundationoffamilybusinessgroupsinTaiwan.

SincethebusinessgroupslistedintheCCISdirectoryarefamily-ownedinnature,the

managementofthebusinessgroupswasthusthevariableofprimaryconcernforidentifyingthe

sample.Inotherwords,theauthorneededtoidentifywhetherthefamilybusinessnetworksare

family-managedorprofessionallymanaged.ConsistentwithDailyandDollinger(1993),those

familybusinessnetworksthathavetwoormoreaffiliatedcompanieswithfamilygeneral

managersweredesignatedasfamily-managednetworks;thosebusinessnetworksthatdonot

havetwoormoreaffiliatedcompanieswithfamilygeneralmanagersweredesignatedas

professionallymanagednetworks.AlthoughDailyandDollingerusedthelastnameasthe

criterionforidentifyingfamilymembers,giventhefactthatChinesefamilynamesaremuch

lessdiversifiedandthosepersonscarryingthesamefamilynamearenotnecessarilyfromthe

samefamily,thisresearchreliedmainlyonfamilyhistoryandfamilychartsprovidedinthe

CCISdirectoryforsampleidentification.Forthosecasesinvolvingambiguity,doublecheckwas

conductedbyusingshorttelephoneinterviewswiththecompanies,inmostcaseswiththepublic

relationsdepartments,toclarifywhethertheirgeneralmanagersarefamilymembersornot.

Outofthetop115familybusinessnetworksinTaiwan,83businessnetworks(72%)have

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twoormorefamilygeneralmanagersandwererecognizedasfamily-managedbusiness

networks,withtheremaining32businessnetworks(28%)beingunderprofessional

management.These83businessnetworksarecomposedof817affiliatedcompanies,andoutof

which349(43%)arecontrolledbyfamilygeneralmanagers.Theseaffiliatedcompaniesare

primarilymanufacturersandcoveravarietyofindustries.Intermsofthesize,inaverageeach

affiliatedcompanyhas396employees;thereare490affiliatedcompanies(60%)havelessthan

200employees,andonly140companies(17%)havemorethan500employees.Thisconfirms

theargumentsofexistingstudies(Kao,1993;Hamilton,1996;Weidenbaum,1996)thatoverseas

Chinesefamilybusinessfirmsarecomposedofanetworkofsmalltomedium-sizedfirms

coordinatingundertheownershipandmanagementoffamilies.

DataCollection

Dataoninternalorganizationswerecollectedviaaquestionnairesurvey.The

questionnairewasdevelopedonthebasisofareviewofpreviousresearchtodesignappropriate

measuringinstruments,andthroughdiscussionswithscholarstoassesscontentvalidity.The

draftwasreviewedbytwogeneralmanagersandthreeseniorcorporatestaffofaTaiwanese

familybusinessnetwork,beforethefinalonewasdistributed.GiventhatmostChinesefamily

businessfirmsviewlowvisibilityasanassetratherthanaliability(Weidenbaum,1996),they

tendtoavoidpublicityandmakefieldsurveysparticularlydifficult.Toobtainfirms ’will

ofparticipation,aninvitationletterwasfirstsenttothecorecompany(whichisusuallydirectly

managedbythefoundingentrepreneurorhis/hersuccessor)ofeachbusinessnetwork.Outof

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the83businessnetworksthatreceivedinvitationletters,28agreedtoparticipate.These28

businessnetworksarecomposedof258affiliatedcompanies,andthequestionnairesweresent

directlytothegeneralmanagersofallaffiliatedcompanies,bymentioningthatthefamilieshave

agreedtoparticipate.Ofthe258generalmanagerswhoreceivedquestionnaires,138(53%)

respondedand122(47%)responseswereusable.Theresponsebiaswastestedbycomparingthe

sizeandprofitabilityofthoseaffiliatedcompaniesthatrespondedversusthoseaffiliated

companiesthatdidnotrespond.Noresponsebiaswasdetected.Onaverage,theresponding

generalmanagershadworkedfortheirfamilybusinessnetworksfor19.1years,andhadworked

fortheirpresentcompaniesfor13.8years.

Measurements

AffiliatedCompany ’sAutonomyBased.oninstrumentsdevelopedbyHill(1988),thedegreeof

autonomywasoperationalizedbydecomposingcorporatecenter ’scontroltowardaffiliated

companies’decision-makingintoSTRATEGIC,OPERATE,andFINANCIAL.Thescale

STRATEGICmeasuredtheextenttowhichstrategiccontrolwascentralized,andwas

constructedfromtheresponsestoninequestions.ThescaleOPERATEmeasuredtheextentto

whichoperationaldecisionswerecentralized,andwasconstructedfromtwelvequestions.

Similarly,FINANCIALmeasuredtheextenttowhichfinancialautonomyiscentralized,and

wasconstructedfromfourquestions.Thethreescalesrangedinvaluefrom1to7.Highscores

indicatedahighdegreeofautonomyoverstrategic,operationalandfinancialdecisions.

FamilyMembership.InChinesebusinessesitisdifficulttoidentifyfamilymanagersand

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professionalmanagersfromtheirnames.Therefore,thisvariablewascollectedbystudyingthe

familyhistoryandfamilychartsprovidedintheCCISdirectory,supplementedbytelephone

interviewsforconfirmation.Adummyvariablewasused.Generalmanagersofaffiliated

companieswereclassifiedasmembersofthefamilywhichownsthebusinessnetwork(=1),or

theyareprofessionalmanagers(=0).

Seniority.Thisvariablewasoperationalizedasthenumberyearsforwhichthegeneral

managersofanaffiliatedcompanyhadbeenworkinginthefamilybusinessnetworks.Data

werecollectedviathequestionnairesurvey.

First/SecondGeneration.Dataonthegenerationbackgroundoffamilybusinessleaderswere

collectedfrominformationprovidedintheCCISdirectory.A(0,1)dummyvariablewasdeveloped

toindicatewhetherthefamilybusinessnetworkisunderthecontrolofthefirst-generationfounding

entrepreneur(=1),orunderthecontrolofthesecondgeneration(=0).

EnvironmentalComplexity. Thisvariablewasoperationalizedasthedegreeoftechnical

dynamismthateachaffiliatedcompanyfacedinitsindustrialenvironment.Respondentswere

askedtoindicatedthespeedoftechnicalinnovationintheirmainindustry,rangingfrom

“extremelyrapid ”(=7)to “extremelyslow ”(=1).Thehigherthescore,themoredynamicthe

environmenttheyfaced.

ResourceSharing.FollowingthemeasuredevelopedbyGuptaandGovindarajan(1986),

resourcesharingwasdefinedastheimportanceandextentofresourcesharingbetweenan

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1

affiliatedcompanyandothercompaniesintermsofeightfunctions.Twoquestions,bothwitha

seven-pointresponsescale,wereposedforeachofthefunctions.Thefirstquestioncollected

dataonafunction ’simportantinimplementingthecompetitivestrategyofanaffiliatedcompany,

rangingfrom “notimportantatall ”(=1)to “extremelyimportant ”(=7).Thesecondquestion

measuringtheextenttowhichanaffiliatedcompanysharedresourceswithothercompaniesin

eachfunction,rangingfrom “none”(=1)to “averygreatdeal ”(=7).Dataontheimportanceof

thevariousfunctionswereusingasweights.Thehighertheweighted-averagescore,thehigher

thelevelofresourcesharingthatexisted.

Interdependence.BasedontheconceptofinterdependenceproposedbyThompson(1967),two

questionswereusedtoestimatethedegreeofinterdependence.Thefirstaskedtherespondents

toprovidewhatpercentageofanaffiliatedcompany ’stotalinputcamefromothercompanies

withinthefamilybusinessnetwork;thesecondquestionaskedforthepercentageofa

company’soutputwhichwaspurchasedbyotheraffiliatedcompanies.Thesumofthesetwo

responseswasusedasthemeasure,rangingfromzeroto200.

TheCronbachalphareliabilitytestwasusedtoassesstheinternalconsistencyofthe

constructs.Table1summarizesthedescriptivestatisticsaswellastheresultsofreliabilitytests

ofallvariablesinthisstudy.Correlationanalysisofallindependentvariablesispresente