Close your eyes and picture a world where probably the most modern firms are usually not big tech giants, but family-run businesses. Now open your eyes, since you don't should imagine it: it's reality.
That's what our team from Business Experts | present in a current global evaluation research on family businesses and family-run firms.
When we reviewed 193 studies from 1996 to 2022 on the strategies of those firms, including innovation, we found that smaller family businesses lead the prosecution in innovation – with one limitation.
Specifically, we found that small and medium-sized family businesses in jurisdictions with strong property rights are probably the most modern on this planet, outperforming large family businesses and non-family businesses of all sizes.
To determine which countries have stronger protection of property rights, we used probably the most comprehensive rating available, which International Property Rights Index.
The index takes under consideration several aspects, including political stability, judicial independence, corruption, quick access to credit, and copyright and patent protection.
The three countries with the strongest legal systems are Finland, Switzerland and Australia. The USA got here in twelfth place.
Why it will be significant
When economics professors discuss “innovation“, we typically mean investments in research and development, improvement of business processes, development of recent products and other activities related to product-related strategic changes.
Previous research has shown that family businesses are kind of modern. This is determined by two aspects: they’re big and whether or not they are in a rustic that protects property rightsIf property rights are usually not protected, people have less incentive to innovate because their ideas could be stolen.
We have seen first-hand the impact this has on entrepreneurs. Some members of our team come from countries where property rights are usually not strictly protected – namely Kazakhstan and China – and we now have heard from family business owners that they struggle to innovate.
Our work shows how essential the protection of property rights is for business growth. And while such legal protection enables growth for everybody, small and medium-sized family businesses profit probably the most.
This is just not entirely surprising. Large firms often have more robust systems in place to guard against risks akin to theft and fraud. And due to their size and established market presence, they’ve less must innovate. In contrast, smaller firms must repeatedly innovate to stay competitive and grow.
Family businesses also value passing their business on to future generations, which supplies them a further incentive to innovate, otherwise they could stop to exist. This appears to be more relevant for smaller, less established family businesses.
What is just not yet known
Our results are qualitative slightly than quantitative, which suggests that further research is required to verify them. We also don’t yet know what form of innovations characterize smaller family businesses or whether these innovations incremental or radical.
Our team desires to learn more in regards to the legal framework through which family businesses operate and the way it affects behavior and performance. We plan to conduct further research on different strategies that family businesses pursue, akin to innovation, internationalization, and mergers or acquisitions.
Ultimately, we hope to seek out best practices that can help family businesses succeed everywhere in the world – not only in specific countries.
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image credit : theconversation.com