Family-Controlled Firms More Likely To Form IJVs: IIM-I Study

Indore (Madhya Pradesh): A study by the Indian Institute of Management Indore has revealed that family-owned firms are significantly more likely to choose international joint ventures (IJVs) than non-family firms when expanding globally, due to their focus on legacy, long-term relationships and trust-based governance.

In contrast, non-family firms prefer international non-equity arrangements (INEAs) for their flexibility and lower risk, aligning with short-term financial goals.

The research highlighted that ownership structure played a crucial role in shaping international alliance strategies and firms should align their partnership choices with their internal values, governance strengths and strategic goals to succeed in global markets.

Co-authored by Prof Sumit Chakraborty and published in the prestigious Journal of International Management, the research analyzed 1,216 cross-border alliances formed by Indian firms between 2000 and 2022.

The study drew on the socio-emotional wealth (SEW) perspective to explain this divergence. Family firms, according to the SEW framework, are not solely driven by profits. Their motivations also include preserving legacy, ensuring long-term continuity and maintaining family identity—objectives that align well with the deeper commitment required in IJVs.

“IJVs demand more investment and integration with foreign partners, but they also offer more control, alignment and long-term relationship building,” said Chakraborty.

“These are values that resonate strongly with family-run enterprises,” he added.

To further explain this behaviour, the research used an integrated risk perspective. IJVs carry higher relational and performance risks, including trust-building and managing market uncertainties. However, family firms—owing to their relational governance style and long-term orientation—are better equipped to handle these challenges. Conversely, non-family firms, often driven by short-term results and financial flexibility, prefer INEAs due to their lower commitment and ease of exit.

The study also identified two conditions that amplified family firms’ preference for IJVs: when the partnering firms were in related industries, and when the firm had prior experience in the target country. Both factors reduced uncertainty and information asymmetry, making equity-based collaboration more attractive and feasible.

Implications for global strategy

For family business leaders eyeing international expansion, the findings provide a strategic roadmap. IJVs, despite their complexity, align with the relational strengths and legacy goals of family firms. When aligned industries and market familiarity are present, IJVs can become a powerful vehicle for sustainable growth.

Non-family firms, while typically opting for INEAs, may need to reconsider this bias. The research cautions that excessive reliance on low-commitment alliances can limit learning, reduce partner loyalty and constrain long-term value creation. Developing stronger relational capacities could enable such firms to explore more robust and enduring international partnerships.

Unique lens on Indian multinationals

This study not only advances academic understanding of alliance governance but also contributes uniquely to the discourse on emerging market multinationals. By focusing on Indian firms, it highlights how cultural values, ownership identity and governance norms interact with global strategy in distinctive ways.

“As Indian firms continue to expand globally, it’s not just about market entry,” Chakraborty said. “It’s about aligning international strategies with the internal DNA of the organization—whether it’s a family’s vision for legacy or a board’s focus on shareholder returns,” he added.

Published on: Monday, June 09, 2025, 01:25 AM IST