Competitive Advantage and Expansion of Family Businesses

Competitive Advantage and Expansion of Family Businesses

‘Before knowing what you need, identify where you are!’

The business world is getting huge competitive across the globe because of already established business houses and emerging businesses. In the prevailing condition of competition, Family Business is the term which gets two impactful views together to the mind, i.e., traditional values and a massive empire. Well between these two lies a long, strong bridge which makes a family business offer and deliver unique values. The bridge is based on the strong competitive advantage of the family firm against the entire industry which makes it a leader with sustainable growth over the years.

It has been identified that family businesses have the two main orientations namely Family orientation and Business orientation which divides the FBs into four types (Fig.1.)¹:

1. Hobby Salon:

• Low at both Family and business orientation.
• Mostly driven by creative instincts and great deal of enthusiasm to initiate something collectively (be it friends or family sharing similar thoughts).
• Competitive Advantage- Passion for Innovating

2. Family Life Tradition:

• High at Family orientation but Low at Business orientation.
• Businesses which hold strong family values and beliefs carried alongside the business.
• Competitive Advantage- Trust and great motivational push

3. House of Business:

• Low at Family orientation but High at Business orientation.
• Family business with strong corporate governance while family members do not participate actively to run the business but rather remain as the board members and major shareholders.
• Competitive Advantage- Corporate and Family governance

4. Family Money Machine:

• High at both Family and Business orientation.
• A balance between the two orientations. This may be the ideal position that any FB would want to attain.
• Competitive Advantage- High Value creation and delivery

To say which type may be the best would be a perspective view which may differ from person to person. While we can conclude that, family Business should be able to identify well its present type and the type it wants to attain (in case) so that it could use its competitive advantage till the maximum limit.

Along with knowing what type of family business is being run, there is also a need to identify the stage in which family business is operating. This helps to decide what strategy and planning shall be needed by the business firm to expand globally. The stages are classified as:

Sage I: Entrepreneurship stage:

This stage is the most initial stage when an individual thinks of converting his/her creative instincts or entrepreneurial ideas into reality by initiating a start-up. The most thoughtful, and crucial stage of choosing the business which is generally driven by the environmental and family values, considering it is a Family Business.

Sage II: The Blade stage:

Enterprise demands a lot before it gives. It takes years for an individual to become a successful entrepreneur by overcoming a huge number of hurdles and difficulties, be it legal, social, competitive or financial. To overcome each of these an entrepreneur needs a good grill and then after a great deal of knowledge, experience and immense potential he/she crosses the blade stage.

Stage III: Growth stage:

‘Rome was not built in a day’ in the same way as an entrepreneur does not reach soon on the growth stage. It takes many years of testing capabilities of an entrepreneur. A family business is said to be at this very stage when it is no longer struggling for its survival instead, is in a stable position of growth.

Stage IV: Streaming stage:

The graph does never keep rising always. An insightful entrepreneur knows that time and conditions keep changing and especially in the business environment. Here comes the stage when a family business needs to diversify in terms of:

1. Roles: After family business is successful and doing well, the owner can switch on to other important roles which may be researching about the ideas to expand or a role which deals with monitoring the business while the executive roles may be managed by other family employees.

2. Territories: Expanding the area of business in new territories which may be domestic or international, initiating the Market Development which deals with finding new market for current products/services.

3. Business: The Family business may also expand its line of business and diversify its products/services. This may be a horizontal diversification (developing products related to the current business line) or conglomerate (developing unrelated products).

4. Ownership: At this stage of Family business the owner may decide to retire and announce a successor and may also need to restructure the organization by moving family members to more monitoring portfolios and appointing the professional as employees to ensure the corporate governance and professionalism.

Therefore it can be concluded that expansion is not merely expanding the business abroad, instead it involves a series of decisions, testing times, stages and assessment of the business at every level before expanding. A family business needs to be well aware of its current position while moving ahead in the course of business. This awareness can help an entrepreneur to make a valid and more practical decision by knowing about itself and the competitive advantage it has. The competitive advantage can thus prove to be a point of difference (POD) for a family business.

Sources:

1. Leenders & Waarts, 2011, Competitiveness of Family Businesses: Distinguishing Family Orientation and Business Orientation

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