Family Firm Internationalization: The Impact of Bifurcation Bias

Research Summary: We develop a new conceptual framework to uncover governance-related determinants of family firms’ internationalization, building upon internalization theory. We assess how family firm governance features determine internationalization patterns on two key dimensions: location choice and operating mode. We focus on family governance characteristics that might drive suboptimal internationalization patterns and on removing such suboptimality. We conclude that bifurcation bias, defined as the de facto differential treatment of family or heritage assets versus nonfamily assets, represents a critical family firm-specific barrier to achieving efficiency in international operations. In the short run, the key difference in international governance is between bifurcation-biased family MNEs and all other types of MNEs. In the longer run, inefficient, bifurcation-biased decision making will make place for comparatively more efficient governance. Managerial Summary: Family firms are susceptible to bifurcation bias—a default preferential treatment of family members and resource bundles that hold positive emotional meaning to the family, that is, heritage assets. Such preferential treatment contrasts with that afforded to professional, nonfamily managers and other resources, with which the founding family does not entertain a positive emotional connection. If left unremedied, bifurcation bias will lead to poor decisions in family-owned multinationals that undertake international expansion, in terms of the choices of which markets to enter and how to enter these. These types of dysfunctional decisions will lead to a decline in competitiveness as compared to nonfamily multinationals. Family firms should, therefore, identify and actively prevent bifurcation bias by implementing the specific safeguarding strategies suggested in this study.