FAMILY BUSINNESS Research Proposal by e0RncUCs

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INTRODUCTION


       For many years family business has continued to play a key in the economies of many

countries in the world. According to zhang and Ma (2008, p.120) family business simply means

those businesses that are owned and also controlled by the same family members. The members

of these families are the owners and managers of their own business.   Poutziouris and Wang

(2004, pp. 106 – 126) define family business as a venture where business control and majority

ownership comes from the family. Again these two scholars argue that, these ventures have at

least two members from the family who are involved in the running of the business. Sukumar

(2011, p.1) says that about one third of the companies with a market value of about $ 5,000 and

above are run and managed by a member from the founding family in the US. Lussier and

Sonfield (2010, pp. 414 – 436) continue to emphasize the role played by family business in the

US economy. According to them 80 per cent of all the 15 million business in the US are family

business and they are contributing more than 50 percent of the total US national product. These

family firms also contribute about half of all the employment opportunities in US and they

always record higher profit than many nonfamily businesses in the country. According to him

business that is headed by person from the founding family is termed as a family business no

matter the qualification of the person. Many people may argue that these persons hold those

management positions because of their qualifications and not for the reason of the family of they

come from. However the truth is that these businesses still remain as family businesses and their

management and control will be influenced by the family issues. Sukumar argues that many of
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these family managers start their management at the top or at senior positions. For those family

managers who do not start at the senior positions there is possibility that their qualifications are

below average. According to professionalism of business management businesses should be

separated with families in order to allow effective management especially in those senior

positions such as chief executive office. This rule tries to separate control and ownership of the

business from the hands of the family members. The past records show that most of the family

business has a high tendency of passing on leadership of the business to a family member if the

past generation family leadership has been successful rather than to employ a professional

manager from the outside.


PROBLEM STATEMENT


       The fact that many family businesses are successful does not mean that they have not

been having challenges. As we have seen the leadership of these businesses is handed over

from one generation to the other in the family line which means the issue of professionalism

does not play a key role in their management. This poses a great threat in the running of these

businesses right from management, cultural and other family problems. This research proposal

attempts to look at some of the challenges that are faced in the management of these family

businesses. The research will answer questions such as what are the challenges faced by the

managers of the family business and how does family issues affect the running of the family

business.
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PURPOSE OF THE STUDY


       The goal of this study will be to come up with an explanation of how the management of

family businesses is affected by the family issues. It attempts to know whether the success or

unsuccessfulness of family business is affected by family issues. At the end of this research we

will be able to learn how family issues affect these businesses.


       SIGNIFICANCE OF THE STUDY


       This research will provide essential information about management of the family

businesses that will be crucial to the managers and owners of these businesses. The family

members who own these businesses will be able to know the effect of having one of the family

members’ managing the business compared to having an external professional managing the

business on their behalf. The information obtained will also help government and other

stakeholders to understand well the challenges faced by the managers of family businesses.

This will help them to take the necessary action such as making legislations that will regulate

the management of these businesses.


       RESEARCH QUESTIONS


       This study will look at whether there is relationship between management of the family

owned businesses and the ownership of these businesses. Does this relationship affect the

returns of these businesses and if it does to what extent.
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BACKGROUND


       Erdem and Baser (2010, pp. 47 – 64) argues that family business form a large portion of

small medium enterprise in the world today. Their contribution to the economy has continued

to increase from one year to another. Duh et al (2009, pp. 256 - 269) argues that succession of

family business play an important role in the economy of the world. This is more evident in the

economies where entrepreneur spirit is encouraged by the government in countries like UK and

US .According to Scholes et al (2008 p. 183) one of the crucial factor in the running of private

business is its ownership transfer. If the private family owners do not successfully pass on the

ownership of the business to the incoming owners, this can easily lead to the close of the

business as result of poor management skills. According to Scholes et al many family business

are facing the problems of ownership transfer. Many family businesses fail to develop

succession plans which make the survival of many family businesses a challenge. They lack the

necessary entrepreneur skills to effectively manage the business after the new managers’

takeover. According to Massis et al (2008), very few family firms manage to survive the process

of transition from first generation to the second. Those family firms that manage to be

successfully transferred, they too fail sometime later after the managers of the next generation

takeover. These scholars continue to argue that the succession of business is the main concern

to all business family managers. Mannes (2010, P.1) argues that the question that poses many

family business is that who will succeed the father after he goes to the retirement. The family

members are always concerned about who will continue with the vision of the founding father.

In order to answer this question many families start preparing their potential sons and
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daughters on how to manage business in order to equip them with the necessary business

management skills. Jessen (2010, p.1) admit that the German and Arab family business have

one problem in common and that is the problem of succession. This will affect the performance

of the business even in the years to come. According to Blackman (2008, p.38), one of the main

reason why the owners of the family business will have fear on their succession plan is because

of tax liability in their business. Many founders of these family businesses will wonder what will

happen to their income taxes if they pass the business to their kid. Will their kids mess up with

business and whether they will still maintain the control of their business after handing over

the family firm to their kids. Row(2010, P.44) uses M.R William .Inc which is a construction

company in US and owned by one family to explain the importance of a succession planning in

the family business. He argues that for successful transition, it is necessary for the older

executive to plan how quickly and efficiently they will pass over the management to the new

executives. Row argues that the outgoing executives should also delegate the responsibilities of

the firm to all the incoming family members to ensure everybody understand his or her role in

the firm. He also argues that the older executives should also know his or her role after the

retirement in the business and how to make the business more stable.


        Juliano (2010, p. 1) gives another example of a successful transition in family business

happened in Greenwich contractor a construction company in US where the father successfully

transferred the leadership of his company to his two sons. The father had taught his sons how

carry out business in the industry particularly about the use of home shows, latest technology

in the industry and how to deal with the suppliers. However as Baruzzi (2010, p.1) notes many
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parents aim to leave their business to their sons and daughters but unfortunately they do not

have a succession plan. Wang et al (2004, pp. 59 – 84) argues that one of the main differences

between family and non family businesses lies in the succession process and especially in the

transfer of intergeneration business. Dormio and Bigliardi (2009, pp. 44 -50) gives three stages

in the succession of the family business. These three stages involve heir development which

focuses on the heir education and work experience outside the business which prepare an heir

for future responsibility. Heir developments which will involve working side by with the

successor in order to learn how to manage the business and again the transfer of

responsibilities, leadership and all authority in the business. The last stage is leadership

succession which involves the final transfer of business to the heir.


       Another major issue facing family firms is management conflicts especially where the

companies is large enough to have external managers such as the board of governors. Oba et al

(2010, pp.603- 666) agues that the main source of firm equity in the family firm is the family

capital compared with independent firms where the equity is owned by the shareholders. Thus

making decisions which are not influenced by family members is not a daily happening in most

of these businesses. This means for independent management of these firms, a mechanism is

necessary to separate control of decisions and the management. The family that is controlling

the business has powers to determine how the profit will be distributed in the business. When

the business happens to be owned partially by family members and the family members own a

big share in the company, the influence of the family in the decisions of the company will

dominate the management. These will mean that family influence will be controlling the
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minority shareholders. This will make the running of the firm challenging especially if the chief

executive officer comes from the business family. Rosa (2009, pp.284 – 298) argues that in such

business there is always conflict between family members and non family members employed

since these two groups will have different perspective towards the business. According to

Richardson and Brice (2009, pp. 49 – 62) family culture play a crucial role in the affairs of the

family business. In these businesses the business will be directed by the interests of the family

thus influencing even the external staffs of the firm to culture and interest of the family. Suare

and Martin (2004, pp. 144 – 163) argues that there is always transfer of values and goals

between the family in control and the business.


       Bagwell (2008, pp. 377 – 394) argues that business do not happen in the vacuum but in

the family where family plays a key role in the business. Family politics is also another challenge

in the management of family business. There are always family conflicts that affect the daily

running of business from family members. According to McPherson (2010 pp, 389 – 413), the

family members who are loyal to business are always rewarded with senior positions in the

firm. At times a couple may not agree on whom of their sons and daughters should occupy the

top position in the firm after their retirement. This family politics will affect the returns of the

company in the negative way and more so the future of the company. Fletcher (2010, pp. 440-

455) argues that there is tendency of unwillingness to bring outsiders in many family businesses

in UK which have resulted to low returns and inefficiency in these businesses. Many families

are not willing to bring in new technology as well as to adapt to new styles of management. The

habit of employing only members of the family in the business has limited this business in
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acquiring new and different ideas from the external employees. According to Sreih (2007, pp.

775 – 777) the challenges facing family business are more related to family issues rather than

business issues. It is therefore necessary to look at the family issues that are affecting the daily

running of the business rather than just business related issues alone.


       METHODOLOGY


       The purpose of this research will be to understand how management of family business

is affected by the family affairs. The study will aim to know whether there is any relationship

between ownership of the family business and their management. So at the end of the study

we will be in a position to tell how ownership of the family business affects their daily

management. Again the study aim to know the challenges that are faced by the family business.


       In order to obtain information that will enable us to test the research question, various

methods of data collection will be applied. In this research, the population will include all the

family owned business in the UK which has been in operation for the past fifty years. The

population targeted will be represented by a sample size of 100 firms in the UK which will be

selected randomly in the whole country. In this survey various research methods will be

interblended in order to obtain valid and reliable data. These methods will include open ended

questionnaires that will be sent to about 50 percent of all the targeted firms to be filled and

then sent back through the email. The second data collection method will be interviews which

will include face to face discussion with the owners and managers of family businesses. This will

target about 30 percent of the targeted population. Finally the survey will also involve open

discussions with family members of these businesses which will target about 20 per cent of the
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sample. Pre-test will also be conducted before the actual survey in order to make the questions

asked in the interviews to be more representative. This will help to know whether there are

unclear sentences or words. About ten questionnaires with open ended questions will be sent

on line to a few people in the targeted sample and then received back to see whether all the

questions are clear to the respondents.


       After the carrying out data collection, the data obtained will be analyzed in order to

make some inferences from the study. Statistical analysis tools will be used to analyze this

qualitative data in order to derive the relationship between different variables. These tools

include the ANOVA analysis that will tell the relationship between different variables. Finally to

test the hypothesis question, regression analysis will be used.


       This study will make a few assumptions in order to obtain the expected results. First, it

will be assumed that the sample selected will accurately represent the whole population of all

the family businesses in the UK. Secondly, it will be assumed that the instruments used to carry

out this research will be valid and they will measure what is expected. Thirdly, it will be

assumed that the interviewed respondent will cooperate and give truthful information. All

these assumptions may affect the result given that this study is using qualitative methods.


RESULTS


       It is expected that after the survey, about 95 percent of all the targeted respondents will

answer the questions either through interview, questionnaire or group discussion. 90 percent

of the emailed questionnaires are also expected to be returned. The results expected will likely
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show clearly the relationship between the ownership of family businesses and the management

of these businesses. After carrying all the statistic analysis, the regression analysis will show the

relationship between these variables.


CONCLUSION AND RECOMMENDATION


       It is expected that after the experiment, it will be established that there is a close

relationship between the ownership of family businesses and the management of these

businesses. Family members are expected to be playing a crucial role in the management of

these businesses. Succession problems are also expected to be a major issue in these

businesses. These findings are expected to be used by all the stakeholders in order to assist in

addressing these challenges that are faced by the owners and managers of the family

businesses. The government will also use these findings to address the issues like nepotism by

making and implementing policies that are necessary to address these issues. As Douglas et al

(2010, pp. 371 – 386) argues that strategic management is an important area that need to be

addressed while attempting to solve the problems faced by family business.
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REFERENCES


Bagwell, S. 2008. Transnational family networks and ethnic minority business development: The

case of Vietnamese nail-shops in the UK. International Journal of Entrepreneurial Behaviour &

Research Volume: 14 Issue: 6


Baruzzi, C. 2010. Family ties. McClatchy - Tribune Business News. Washington.

Blackman, I.L. 2010. Overcoming the Fear of Succession Planning. Modern Machine Shop.

Vol. 83, Iss. 6

Brice, W.D & Richardson, J. 2009. Culture in family business: a two-country empirical

investigation. European Business Review Volume: 21 Issue: 3


Dormio, A.I. & Bigliardi, B. 2009. Successful generational change in family business. Measuring

Business Excellence Volume: 13 Issue: 2

Douglas, A. J. & Davies, J. 2010. Differentiation for competitive advantage in a small family

business. Journal of Small Business and Enterprise Development Volume: 17 Issue: 3



Duh, M., Tominc,P. & Rebernik, M. 2009. Growth ambitions and succession solutions in family

businesses. Journal of Small Business and Enterprise Development Volume: 16 Issue: 2


Erdem, F.& Baser,G. 2010. Family and business values of regional family firms. International

Journal of Islamic and Middle Eastern Finance and Management Volume: 3 Issue: 1


Fletcher, D. 2010. A review of the educational and support infrastructure for family business in

the UK. International Journal of Sociology and Social Policy Volume: 30 Issue: 8
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Jessen, J. 2010. 'Arab, German family businesses have so much in common'. McClatchy -

Tribune Business News. Washington

Juliano, M.C. 2010. Fathers team up with sons and daughters for business success. McClatchy -

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Lussier, R.N & Sonfield, M.C. 2010. A six-country study of first-, second-, and third-generation

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Scholes, L., Westhead,P. & Burrows, A. 2008. Family firm succession: the management buy-out

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Wang, Y., Watkins, D., Harris, N. & Spicer, K. 2004. The relationship between succession issues

								
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