Governance in Immigrant Family Businesses

Enterprise, Ethnicity and Family Dynamics

Daphne Halkias, Christian Adendorff

• Publisher: Routledge
• Year: 2016
• ISBN:
  9781317125945
• Edition: 1
• Topic: Business
• Subtopic: Corporate Governance
• Index: Business

Family businesses constitute some of the most unique, complex, and dynamic systems in modern society. The blending of the performance-based world of business and the emotion-based domain of the family creates a system potentially fraught with confusion and conflict. The significant rise in immigrant family businesses adds a further level of complexity to this mix. Research into immigrant family businesses has been based on traditional, limited views of entrepreneurship largely ignoring the ethnic and family contexts that create the culture from which entrepreneurship emerges, making it impossible to understand the complex and interdependent relationships between an owning family, its firm, its governance and the community context in which the firm operates. These firms possess features that make their governance a challenging task. They depict a complex stakeholder structure, whereby the ownership stakes are passed from one generation to the next. The owning family's members usually play multiple roles, thereby blurring governance relationships. Governance in Immigrant Family Businesses explores the relationship between ethnic cultural influence in family businesses and its impact on corporate governance, addressing the intertwined influences of contractual, relational and cultural governance mechanisms and sets out a comprehensive theoretical model which clarifies the complexities involved in business planning, family harmony, and ethnic cultural variables. The authors specifically identify the implications for research, education, and practice. Application of their model will be of value to policy makers, consultants, business researchers and educators.

Chapter 1
The Immigrant Family Business in Today’s Global Marketplace

Even the most conservative estimates put the proportion of all worldwide business enterprises owned or managed by families between 65% and 90%. The economic importance of immigrant family businesses for the economies of both the developed world and developing national economies are well documented. What often goes unnoticed in the plethora of information within the area of Family Business is that immigrant family businesses are one of the most unique, complex, and dynamic systems in modern-day society. Immigrant family business has even been dubbed by researchers “the understudied entrepreneurial experience”. And, today, even the social and economic phenomena that have been classically attached to immigrant family businesses, such as cutting off all ties with their native country, emigrating due only to conditions of poverty, immigrants lacking formal education and working mostly within ethnic enclaves, have changed dramatically in many countries hosting immigrant family businesses.

The development of today’s global marketplace over the past decades has altered the traditional concept of immigrant entrepreneurship. If the concept of immigrant entrepreneurship brings to most people’s minds the immigrant and his family boarding a boat for a vast voyage to an unknown universe known as a host country, the Internet has taken care of dissolving that reality. The traditional immigrant entrepreneur started a business in the host country as a means of survival – and usually never returning to the native land and cutting off all familial and cultural ties. Today, the concept of the immigrant entrepreneur is heterogeneous and refers not only to immigrant entrepreneurs in the traditional sense.

Today’s immigrant entrepreneur, thanks to the ease of travel and telecommunications, maintains strong ties with social and cultural capital from the homeland. Many of this new breed of immigrant entrepreneurs start their business not because of the usual obstacles faced by immigrants in the host country, but because of a known business opportunity that can generate revenue in the host country and beyond its borders. And like never before, and a factor not to be overlooked by policy makers and economists alike, at least half of these immigrant entrepreneurial ventures throughout the world are headed by women. Both this new and multivariate type of immigrant entrepreneurship and the traditional immigrant entrepreneurship model still remain phenomena of great interest for policy makers, economists, entrepreneurs, and researchers.

The arrival of immigrants in economically developed societies has increased in the last two decades with the development of transport systems and improved communications. Due to reasons ranging from poverty and war to the worldwide recession, individuals decide to emigrate searching for a supposedly better economic situation; but many of them have serious difficulties entering the labour market. While some firms use immigrant labour because of the lower salaries, and in some cases because of professional qualifications, the immigrant labour market restricts the possibility of employment and the chances of being hired in certain sectors. That problem is exacerbated in times of economic recession in developed countries. As a consequence of factors like cultural baggage or previous experience, some individuals who decide to emigrate opt for entrepreneurship after identifying opportunities that are unexploited in the host societies and perceiving that they could generate high incomes.

In previous studies on immigrant entrepreneurial processes, availability of information is one of the resources with greatest impact on the success of new enterprises created by immigrants. In that regard, the immigrant entrepreneur has a bundle of knowledge stemming from the experience of the immigration process, in which the individual has been through international experiences and situations providing them with knowledge that differs from that of most native entrepreneurs.

Firstly, the immigrant entrepreneur has the knowledge that was accumulated in their country of origin up until emigration. Depending on the moment the individual decides to leave the home country, they may have to accumulate even more specific knowledge there. Thus, immigrants import experience, training and some contacts from their home country that could be useful in creating their own firm in the host country. In fact, on many occasions individuals consider that firm creation is the only valid option for application of that knowledge due to the possible barriers in the labour market. In many cases, immigrants have access to and knowledge of the markets or industries in their home countries, which enable them to establish commercial links and take advantage of international commercial networks. The establishment of such networks is usually a much more complicated task for native entrepreneurs should they wish to establish commercial relations with other countries.

Secondly, knowledge is also acquired by the individual in the host country and will be the result of their contact with the new territory and its inhabitants, culture, and institutions. One factor that is important to new venture creation by immigrants is the length of time that they have lived in the host country: that time is essential to learn and to obtain information and social resources. In other words, it is fundamental to accumulate experience in the host country in order to make the move into business. The necessary knowledge may be acquired without discounting other sources such as education or immigrant networks. Accordingly, the knowledge acquired in the host country will be key to the business expansion, with some authors stating that the firms owned by immigrants who restrict themselves to links with their ethnic community will not be able to expand. In fact, immigrants today find themselves in a more complicated situation when they wish to access a new market but do not have previous knowledge and experience. The immigrant entrepreneurs best adapted and integrated in the host country’s society will have greater probabilities of being more competitive, and that is achieved by improving skills in the host country’s language and social capital.

Finally, there is the knowledge acquired in the process of transition from one country to another. The individual may pass through a series of countries or regions before deciding to locate in the country where the new venture is ultimately established. The transition process would involve all the knowledge obtained in intermediate destinations between departure from the home country and arrival in the country where the firm is created. In that regard, knowing two or more countries and, therefore, different environments, will enable the individual to exploit their knowledge by applying it to the entrepreneurial activity through, for example, opportunity detection or management techniques.

The most common form of immigrant entrepreneurial activity is the known ethnic enclave where immigrants and immigrant businesses congregate. Some immigrants possess cultural capital or all the knowledge that, despite having been obtained in the host country, is a consequence of contact and relations with individuals from the entrepreneur’s country of origin. Immigrant entrepreneurs’ access to this information and knowledge is a result of their origins; therefore, despite being acquired in the home country, this knowledge may be considered to have been acquired at the intersection with the intermediate processes – in other words, results of the migration process (e.g. the knowledge of a compatriot supplier with lower prices).

The focus on the geographical origin of immigrants’ knowledge introduces interesting perspectives to the analysis of successful firm creation by immigrants. By knowing two different realities, immigrants possess knowledge of their home countries’ industry and markets, which represents an advantage that can be commercially exploited on the strength of the contacts and information acquired in the host country. There is also a knowledge acquired in the host country that is later used in the home country in sectors such as tourism. This has been evidenced in the case of Turkish-German entrepreneurs who know the likes and preferences of the German origin market and so can successfully serve those tourists. To that end, many of today’s immigrant entrepreneurs seek to bring their business skills and plans for entrepreneurial expansion to the global marketplace. And, they use their greatest social capital, families in their home countries and the social networks between the two countries, to build transnational entrepreneurial activities.

The blending of two inherently different realms – the performance-based world of business and the emotion-based domain of the immigrant family – creates a system potentially fraught with confusion and conflict. Years of research has pointed to a direct link between good governance and the prosperity and survival of all business entities over the long term. Immigrant family businesses are not an exception and certainly not today as many seek to bring their enterprise activity into the global market place. A complicating factor of the immigrant family business, whether remaining local or going global, is that the relative importance of the immigrant family in different societies varies across cultures and, therefore, one can conclude that the definition of the term immigrant family business is culture-specific. When discussing managerial practices, the field of international management often neglects specific aspects of culture in favour of a more easily defined, and less theoretically precise, parameter denoted by geopolitical boundaries.

Given the dominance of immigrant family businesses in so many national economies all over the world, their poor survival rate is a continuing source of concern. As little as three out of 10 immigrant family businesses survive into the second generation, and less than 15% survive into the third generation. A major factor in the poor survival rate of immigrant family businesses is poor governance. Within the small business sector in general and the immigrant family business sector in particular, the link between longevity and good governance is complicated by two additional factors. The first is the failure to realize that the specific operating characteristics of an immigrant family business can be a source of persistent business problems, missed opportunities, and unnecessary risks that could and should be avoided. Failure by the members of an immigrant family business to acknowledge the unique characteristics of their business could similarly have severe and lasting adverse consequences for the business. In order to allow an immigrant family business to make its rightful contribution to any country’s economy or beyond to the global marketplace, it must be acknowledged that its unique nature will impact on its corporate governance and thus on its survival.

The second complicating factor is the reality that corporate governance cannot be “standardized” for all ethnic groupings that function in an economy. The way in which corporate governance is implemented has been shown to be affected by ethnic and cultural influences. Despite the acknowledgement by some authors that ethnic and cultural influences impact on immigrant family businesses, few studies have been carried out to explore the relationship between cultural influence in immigrant family businesses and its impact on corporate governance and thus ultimately on their survival and contribution to any national and international economic prosperity.

Certainly, no empirical study has been done to investigate how leveraging entrepreneurship, culture, and family dynamics contributes to governance and sustainability of the immigrant family business in today’s global marketplace. This applied research book specifically addresses the aforementioned not only through ideas and business models, but also through real-life case studies of immigrant family businesses thriving in today’s economies – whether they are in an ethnic enclave or have expanded beyond the host country’s borders. A study of corporate governance and sustainability of this nature is of particular importance if one considers the economic influence of immigrant families in the world’s economy. Therefore, the basic underlying premise of the study is that once the factors that could enhance good governance and sustainability have been identified, immigrant entrepreneurs can proceed to the effective management of governance to ensure that their family businesses can optimize their critically important contribution to the global economy.

As a significant component of the international economy, one would expect that there would be extensive debate, analysis, and attention centred on immigrant family businesses. The incongruous reality is that this sector has been largely overlooked and ignored by economists, policy makers, educators, academics, and global market commentators alike. Against this background and the economic significance of the topic, this applied research book will bring to light much needed, new scholarly and practical knowledge on how entrepreneurship, culture, and family dynamics influence the development of good governance and sustainability in immigrant family businesses.

Case Study:
The al-Awadhi Brothers:
The Story of Two Emirati Entrepreneurs

Maryam Khazaeli, Mary Barrett

For centuries, families of transnational Sunni Arabs, or Persians both Sunni and Shiite, have migrated from southern Iran to the Arab coast of the Persian Gulf. In fact, Iranian groups living on the coast of the Persian Gulf have generally looked more to the United Arab Emirates (UAE) than to Iranian groups inland (Potter, 2009). They have maintained a “dual existence”, owning houses in two or more countries and speaking multiple languages (Nadjmabadi, 2010). This has been a source of economic benefit to both Iran and the UAE, at least until the recent political unrest in the region. Many Iranians and Emirati citizens of Iranian origin in Dubai and other UAE cities come from towns in the department (shahrestân) known as Larestan, and from towns in the Iranian province of Hormozgân. These populations are generally called Larestani, from the name of the region, or by the name of their town of origin: Evazi, Khonji, Bastaki, etc. In the UAE they are also described by the interchangeable Farsi terms: Khodmooni and Achami; the former means “of our own kind”, or in a broader sense “those familiar to us”. These Farsi terms emerged in the Arab areas of the Persian Gulf and show the strong mutual attachment of Larestani transnational immigrant families and UAE native families.

The Larestani’s shipping skills and access to the lucrative markets of Africa and Asia have strongly shaped Dubai’s economy (Davidson, 2008). By around 1900, Dubai had become the most attractive business environment in the region and accordingly benefited from a stream of skilled migrant business people from the unstable Persian coast. This UAE tradition of welcoming entrepreneurs long predates its oil exports (Davidson, 2008). Also around 1900, around 30 of the most adaptable of the immigrant Iranian family businesses in Dubai slowly developed to become global conglomerates (Jaidah, 2008).

Two brothers, Mohamed Parham al-Awadhi and Payman Parham al-Awadhi, are descendants of the entrepreneurs who travelled and traded across the Persian Gulf. The story of the business they created in 2010, Wild Peeta, shows how the family, a primary element of the UAE’s collective culture, has evolved to encompass online networks. The brothers developed a gourmet shawarma, transforming this local Levantine dish into an international business. A shawarma consists of lamb, goat, chicken, beef, or mixed meats that are grilled on a spit then wrapped in pita bread. The brothers also founded Qabeela New Media, the first UAE example of a new genre of social TV.

Mohamed, aged 38, who speaks five languages and has travelled worldwide, attributes his interest and talent in business to his family origins: “I come from a line of entrepreneurs. My great grandparents were Bedouins and travellers. My grandfather had a trading business in commodities, sugar, and food. He used to trade across the Gulf, particularly the UAE, Iran, and India.”

After a successful management career at an Emirati bank, Mohamed’s father started his own business. Mohamed explains how it influenced the brothers’ early business learning:

My father opened up the Hello Kitty stores in the Middle East. Any vacation we had he made us work with him in his shop in Bazaar, Old Souq. My vacation memories are of getting up in the morning and walking to the Bazaar and walking back to the house in the afternoon. We grew up in that business environment though we did not get paid. We did everything and learnt a lot about business concepts in practice. From a very young age we learned how to take responsibility and it was built into us to do business.

The business idea that the brothers developed also came from their family origins. As Mohamed says: “My father started making us food from the dishes he had experienced in different countries. That is how we were exposed to international cuisine.”

After studying business in the United States the brothers came home and started working in the family business. However, this only lasted two years before the brothers felt the need to start their own business careers, despite the fact that their father would be displeased, their lack of experience in other areas, and the preference among international companies to employ non-Emiratis:

We had our own identity and our own id...

Table of contents

• Cover Page
• Title Page
• Copyright Page
• Contents
• List of Figures
• List of Tables
• About the Authors
• Notes on Case Study Contributors
• Acknowledgements
• Introduction: Why Today’s Global Marketplace Cares about Good Governance in Immigrant Family Businesses
• 1 The Immigrant Family Business in Today’s Global Marketplace
• 2 The Family and the Business
• 3 The Impact of Culture on Immigrant Entrepreneurship
• 4 The Immigrant Family Business: Defining Concepts
• 5 Family Dynamics Impacting Governance and Sustainability of Immigrant Family Businesses
• 6 Entrepreneurship Issues Impacting Good Governance within the Immigrant Family Business
• 7 Cultural and Family Dynamics in the Governance of Immigrant Businesses
• 8 The Sustainable Immigrant Family Business Model of Good Governance
• 9 Epilogue: Discussion and Recommendations for Future Research
• Bibliography
• Index