Selected aspects of family business operation in local and regional markets – research results

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Selected aspects of family business operation in local and regional markets – research results

EWA WIĘCEK-JANKA Poznan University of Technology

Pl. Marii Skłodowskiej Curie 5, Poznan, Poland ewa.wiecek-janka@put.poznan.pl ADRIANNA LEWANDOWSKA

Warsaw School of Economics Al. Niepodległości 162, Warsaw, Poland

alewandowska@ibrpolska.pl ALICJA HADRYŚ-NOWAK Poznan University of Economics Al. Niepodległości 10, Poznan, Poland

alicja.hadrys-nowak@ue.poznan.pl

Abstract

A family business operates within a specific model of internal relations (at the family-business level) and external relations, which, in the first place, concern the local environment, followed by regional, national and global environment. A business organization understood in such a way is difficult to manage as it is a multi-layer mechanism that holds one internally related group of stakeholders. It is the subject of a complex community whose members invest in it not only at the family level but, above all, they bear in mind local and regional market reach. The aim of the paper is to present the mechanisms of family business operation in local and regional contexts in Poland with a particular focus on their owners’ business attitudes.

Key words: family business, business attitude, market reach JEL O350

1 Introduction

The topic of family-owned businesses and problems related to their functioning has been addressed in local and regional contexts by a number of scholars all over the world (Harris, Martinez and Ward 1994; Anderson and Reeb 2003, 2004; Graves 2006; Poutziours, Smyrnios and Klein 2006;

Kets de Vries, Carlock and Florent-Treacy 2007; Basco and Jose 2009; Dekker, Lybaert, Mercken and Steijvers 2010; Zahra 2010; Arnoff, McClure and Ward 2012; Gedajlovic, Carney, Chrisman and Kellermanns 2012), and in recent years also in Poland (Jeżak, Popczyk and Winnicka-Popczyk 2004; Safin 2007; Sułkowski and Marjański 2009; Surdej and Wach 2010; Więcek-Janka, 2013).

An increasing body of research related to this type of business has been conducted on the basis of native methodology from the angle of a regional culture with a simultaneous use of international research experience.

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Family businesses often stem from the craft industry and micro-enterprises and as such they present various attitudes towards the market, are guided by diverse aims which do not always include being focused on profit-making or aspiring after maintaining security. Such attitudes can be observed looking at activity taken and related to, for instance, sustainable development which is underlined by Berrone, Cruz, Gomez-Mejia and Larraza-Kintana (2010), Berrone, Cruz and Gómez-Mejia (2012) and also Zellweger and Astrachan (2008). Family businesses find it important to develop long-standing relations with the environment, local and regional, based on trust and altruism (Anderson et al. (2005), Carney (2005), Karra at al. (2006). The authors note that also in Poland family businesses represent a different type of capitalism, which is far from anonymous public enterprises (Zahra 2010) set to develop local and regional relations. Economic (business) aims are subject to life aims, in particular to family’s long-term economic and social security that spans not only one generation but future generations as well and takes care of the closest circle’s well-being.

The aim of the paper was to analyze the functioning of family businesses in the explored markets with a particular focus on the regional context. Hypotheses made and verified related to determining a relationship between the reach of businesses’ impact and variables: family identity, adopted business attitude, financial situation dynamics and employment dynamics. The study was performed on 2,291 businesses in Poland using the CATI technique.

2 Family business – term and reach (preparation for the study)

Difficulties with the unified understanding of the term family business forced the authors to look at the problem bearing in mind proposed interpretations found in source literature (Anderson and Reeb 2003; Basco and Jose 2009; Więcek-Janka, 2013). For the needs of the paper, the family business concept model was used (Więcek-Janka and Lewandowska, 2017), in which all main criteria discussed by family business researchers were taken into account. They include:

- Participation of the family in the ownership at the level of above 50.1%, - Self-determining the business as a family one,

- Engagement of at least two family members in operational activities,

- Engagement of at least two persons in managerial activities in the long-term perspective and intention of succession,

- Effected intergenerational transfer.

The discussed model of five conceptual levels comprises:

Potential family businesses (level 5). The ownership of the business is in the hands of the family (for small and medium-sized businesses 50.1% and more, for joint-stock companies minimum 25.1%).

Businesses with family identity (level 4). They contain the characteristics of level 5 and self- determining the business as a family one. Self-determining the business as a family one implies business behaviour containing the family system of values. At this level, familiness in business is noticed and shaping the identity of a family business begins.

One generation family businesses (level 3). They contain the characteristics of level 4, engagement in the business operational activity and business strategic co-planning of at least one family member (apart from the owner).

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Family business on the verge of succession (level 2). They contain the characteristics of level 3 and strategic planning in a business taking into account the process of succession. At this level, one can observe the engagement of at least two persons in everyday management and the engagement of family members in the management board’s activities with the precise intention of succession.

Multigenerational family businesses (level 1). They contain the characteristics of level 2 and implemented succession.

Figure 1 shows the model of five defining levels of family businesses taking into account the share of family businesses in the total number of Polish firms and share in Poland’s GDP.

Figure 1. Share of family businesses in: the population of enterprises in Poland and Poland’s GDP in accordance with the model of Five defining levels.

Source: Więcek-Janka, Lewandowska 2017

The conceptual model was used in the identification of the number and determining the GDP for family businesses from Poland and became the basis for analyzing data obtained in the COSME 2015/2017 analysis¹. The analysis was performed on the sample of Polish enterprises whose internal distributions (size, business line) were secured during the process of selecting the sample.

Due to their short history, over 95% of them were set up after 1989, the elements considered as particularly significant included the identification of businesses’ current trends and future activities through the analysis of business attitudes adopted by owners in the context of local and regional impact as well as through the analysis of employment dynamics and financial situation. The problem of adopting particular business attitudes in the context of businesses’ impact areas seems to be essential especially at the time of changes in geo-political markets. The changeable politics

1Family Business Statistics – a scheme realized, besides Poland, in 6 countries. It aims at creating a system of analyzing family businesses in a given country. It is the first step towards collecting official data regarding family businesses in the European Union.

The Polish study was conducted by the consortium of the Family Business Institute and the Research and Statistical Education Centre of the Central Statistical Office.

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of Central and Eastern European governments may dissuade foreign investors from entering these markets. Therefore, economic growth and economic stability rest with domestic businesses which most often operate in local and regional markets.

3 Research methodology

The authors focused their attention on domestic businesses from Poland, taking into account the broadest definition out of those presented. They chose for the detailed analysis family businesses that fulfill the criteria of all five defining levels (cf. fig. 1). The population of analyzed businesses was estimated to be 2,500,000. The study was conducted on a representative sample of businesses in Poland. Quota and typical case sampling was used based on the following elements: size of a business (large, medium, small and micro-sized in accordance with the percentage share in the population according to the Central Statistical Office) and a province (an administrative subdivision of Poland). The units analyzed included owners or members of a management board of an enterprise with a high decision-making capacity (owner, co-owner, high-level manager). The sample was at the level of 2,000 (minimum 1,884) with the adopted parameters: confidence level 0.99; fraction size 0.5; adopted maximum error 0.03 (95% of micro-enterprises; 3.2% small-sized;

1.6% medium-sized and 0.2 large-sized). The actual sample was 2,291 enterprises. The research method used was CATI: Computer Asisted Telephone Interview.

4 Discussion

The analysis covered the reach of businesses’ impact subdivided into local, regional, national, European and global reach as well as entrepreneurs’ business attitudes and other variable developmental trends. Taking into account business attitudes, the following were singled out:

traditional attitudes which centre family businesses’ operation on implementing family values and increasing the family’s sense of security; innovative attitudes which centre the operation of a business on increasing the competitive potential through the introduction of technical, technological, product-related and organizational innovations.

The analyzed sample of 2,291 Polish enterprises includes businesses operating in local markets (38%), national market (28%), regional market (23%), European market (9%) and global market (2%), which is shown in figure 1.

Figure 2. Reach of Polish businesses’ impact (n=2,291).

Source: own elaboration

An in-depth analysis was performed and the reach of impact between enterprises was compared with: family identity (level 4 in the model, cf. fig. 1) and without family identity (level 5 in the

38%

23%

28%

9%

2%

0% 5% 10% 15% 20% 25% 30% 35% 40%

Local Regional National European Global

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model , cf. fig.1). It can be observed that businesses which stress their family identity dominate in the group of businesses with the regional reach and in the group with the European reach (cf. fig.

3). The regional reach of enterprises, as indicated by the respondents in the open-ended questions, is often tied with a higher level of investment to increase the reach of impact and to promote products and services in regional media underlining the family character of a business. Similar practice was indicated by businesses with family identity operating in European markets. In both cases the familiness of businesses was treated as a competitive advantage.

Figure 3. Share of the declarations of family awareness and identity among businesses with a various reach of impact (n=2,291).

The set hypothesis regarding the influence of businesses’ family identity on the reach of impact was verified and one can draw conclusions regarding the statistically significant dependency (cf.

table 1)

Table 1. Results of the verification of the hypothesis that assumes a relationship between the reach of businesses’ impact and family identity (n=2,291)

Statistic: reach and identity

Chi-square. df P

Pearson’s Chi2 16,39740 df=4 p=,00253

Coefficient of contingency ,0842998

Cramér’s ,0846009

The analyzed variables influence each other but their association is weak which is confirmed by Cramer’s V indicator (cf. table 1).

The analysis covered selected business attitudes in the context of the reach of a family business’

impact. The analysis was performed for enterprises comprising five defining levels (cf. fig. 1).

They made up 92 % of the analyzed sample (n=2,108). The conducted analysis allows to conclude that respondents more often point to traditional attitudes. It is particularly visible among the analyzed businesses in local and regional markets. Twice as many businesses in the local market declare traditional attitudes rather than innovative. A slightly smaller difference can be observed in regional markets. The obtained data allow to draw the following conclusions: first, traditional

35,9%

24,0%

26,4%

11,8%

1,9%

38,9%

22,0%

29,2%

7,2%

2,4%

0,0% 5,0% 10,0% 15,0% 20,0% 25,0% 30,0% 35,0% 40,0%

Lack of identity Identity of the company's family

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attitudes most often relate to family values and are closely associated with the regional culture;

second, thanks to such attitudes of businesses one can count on including into the business offer values and heritage, which in fact have little in common with business; third, family businesses expanding their reach transfer local and regional values to other markets, thanks to which they spread and strengthen the identity of a region thus contributing to its development. Another conclusion refers to a low index of businesses which are geared towards innovations. Such attitudes are typical of global enterprises (cf. fig. 4), which is not surprising, as building a competitive edge based on innovation is now a necessity in international markets. The fact of combining both attitudes also deserves paying attention to. One identified businesses which declared the combination of traditional and innovative attitudes. It is a developmental trend which should be particularly considered by local and regional authorities. Such an attitude increases businesses’

chance for growth with simultaneous respect for values which are important for local communities and regions.

Figure 4. Reach of impact of Polish family businesses (n=2,108).

The reason for presenting by Polish family businesses a traditional attitude is linking the name of a business with the family name, family history and respect for their predecessors. Similar results were obtained by other researchers (Safin, 2007; Jeżak, Popczyk, winnicka-Popczyk, 2004). On the basis of open-ended questions, one identified values which constitute a traditional attitude among family businesses. They are: quality, honesty, reliability, which are present not only in everyday operation but also as credo of the analyzed enterprises.

Among businesses with family identity, 61.81% see their business attitude as traditional and 33.61% as innovative. Among potential family businesses, 53% of them declare traditional attitudes and 39% innovative attitudes. In the analysis of the results of business attitudes oriented towards tradition the mode and the median were “4” (in a 5-point scale) which may indicate businesses’ satisfaction with the chosen path of growth focused on tradition. The weighted arithmetic mean of the obtained results (on a 5-point scale) for the traditional model was 3.81. Also data concerning family businesses opting for the innovative model were analyzed. Here the median and the mode were “3” (on a 5-point scale). The weighted arithmetic mean of the obtained results was at the level of 3.22. The data collected in the study allow to perceive certain regularities

66%

55%

50%

29%

28%

38%

44%

46%

61%

4%

6%

4%

10%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

The traditional The innovative The mixed

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connected with the age of a business and adopted business attitudes: traditional and innovative.

The tradition-based business attitude is followed by close to 62% of family businesses. In this group, 78% are microbusinesses, 15% are small-sized businesses, 6% are medium-sized businesses and 0.6% are large enterprises. The innovative attitude is followed by 34% of Polish family businesses. In this group, 75% are microbusinesses, 16% are small-sized businesses, 7% are medium-sized businesses and 1% is large enterprises.

The set hypothesis about the relationship between the reach of businesses’ impact and the declared business attitude was verified and allows to state that there is an association between these variables (cf. table 2).

Table 2. Results of the verification of the hypothesis assuming a relationship between the reach of impact of family businesses and potential family businesses and a business attitude (n=2,108)

statistic

Statistic: reach and business attitude

Chi-square Df P

Pearson’s Chi2 73,60257 df=12 p=,00000

Cramér’s V ,1034840

The financial situation observed by the respondents was also studied through the evaluation of the current situation in comparison to what the situation was like two years before (cf. fig. 5).

Figure 5. Polish family businesses’ reach of impact and the evaluation of their financial situation (n=2,108).

The data allow to notice that businesses operating in local and regional markets see their financial situation to be at the same level as two years before. Every third business in the regional market and every fourth business in the local business view their situation as being better. The in-depth analyses show that 57% of those indicating a better financial situation present an innovative attitude in regional markets and 41% in local markets.

The set hypothesis about the existence of a statistically significant dependency between family businesses’ reach of impact and the financial situation (measured as observed deterioration vs.

deterioration of the financial situation) was verified. The results allow to ascertain that there is a

25%

29%

37%

41%

55%

23%

18%

17%

20%

48%

42%

40%

25%

4%

5%

3%

2%

0%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

better worse the same level no data

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statistical dependency between the analyzed variables, with a simultaneous weak strength of this association (cf. table 3).

Table 3. Results of the verification of the hypothesis assuming a relationship between the reach of impact of family businesses and potential family businesses and the financial situation (n=2,108)

statistic: reach and financial situation

Chi-square Df P

Pearson’s Chi2 62,29768 df=12 p=,00000

Also the change in the level of employment in relation to what the situation looked like two years before was analyzed (cf. fig. 6). A similar distribution to the financial situation was obtained, which means that along with a better financial situation, employment in family businesses increases.

Locally and regionally operating businesses indicated keeping employment at a constant level (close to 80% of answers) with a minimum increase. An interesting point can be noted when analyzing the relationship between increased employment and a business attitude. Close to 60% of locally and regionally active businesses that declare increased employment adopt an innovation- based attitude. It may mean that raising family businesses’ innovativeness can lead to their growth in the sphere of employment and finance.

Figure 6. Reach of Polish family businesses’ impact and changes in employment (n=2108).

The set hypothesis that assumes a relationship between the reach of family businesses’ operation and the level of employment (analyzed as dynamics in relation to what the situation looked like two years before) was verified. On this basis, one can acknowledge that there is a statistically significant, yet weak, relationship between the reach of family businesses’ impact and the dynamics of employment (cf. table 4).

7%

11%

15%

26%

30%

10%

8%

9%

10%

80%

78%

75%

65%

60%

4%

3%

2%

0%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Employment has increased Employment has decreased Employment unchanged no data

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Table 4. Results of the verification of the hypothesis that assumes a relationship between the reach of family and potential family businesses’ impact and the level of employment (n=2108)

statistic: reach and employment situation

Chi-square Df P

Pearson’s Chi^2 73,60257 df=12 p=,00000

An interesting analysis from the point of view of taking into account the equal opportunities policy was to check the share of a particular sex in business attitudes. No statistically significant differences were noted in the analyzed sample. A traditional business attitude is dominant both amongst females (63%) and males (61%), whereas 33% of males and females adopt an innovation- centred attitude. Analyzing the remaining variables and relationships between them and a particular sex, similar distributions were obtained, which means that also in these cases the owner’s sex does not influence them.

5 Conclusion

The conducted research and descriptive and quantitative analyses allowed to present selected aspects of Polish family businesses’ operation taking into account their market impact. The set aims were achieved and hypotheses verified. The relationship between the reach of businesses’

impact and the following variables was proven: family identity, adopted business attitude, financial situation dynamics, employment dynamics. The authors maintain that the conducted research and conclusions drawn should continue to be looked into in a more in-depth way taking into account additional aspects of family businesses’ functioning, e.g. operational effectiveness and decision- making processes.

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